# Engineering Economy 255330

Assignment 10

Chapter 13 Breakeven Analysis Due Date: 13.6 A call center in India used by U.S. and U.K. credit card holders has a capacity of 1,400,000 calls annually. The fixed cost of the center is \$775,000 with an average variable cost of \$2 and revenue of \$3.50 per call. (a) Find the percentage of the capacity that must be placed each year to break even. (37% of the center’s capacity.) (b) The center manager expects to dedicate the equivalent of \$500,000 of the 1,400,000 capacity to a new product line. This is expected to increase the center’s fixed cost to \$900,000, of which 50% will be allocated to the new product line. Determine the average revenue per call necessary to make 500,000 calls the breakeven point for only the new product. How does this required revenue compare with the current center revenue of \$3.50 per call? ( r= \$2.90 per call.) 13.11 A civil engineer has been promoted to manager of engineered public systems. One of the products is an emergency intercept pump for portable water. If the tested water quality or volume varies by a preset percentage, the pump automatically switches to preselected option of treatments or water sources. The manufacturing process for the pump had the following fixed and variable costs over a 1-year period.
Administrative Salaries and benefit: 20% of Equipment Space, utilities, etc. Computer: 1/3 of Fixed Costs, \$ 30,000 350,000 100,000 55,000 150,000 Materials Labor Indirect labor Subcontractors Variable Costs, \$/Unit 2500 200 2000 800

(a) Determine the minimum revenue per unit to break even at the current product volume of 5000 units per year. ( r= \$5561 per unit) (b) If selling internationally and to large corporations is pursued, an increased production of 3000 addition units will be necessary. Determine the revenue per unit required if a profit goal of \$500,000 is set for the entire product line. Assume the cost estimate above remain the same. ( r= \$5601)

13.14 Two pumps can be used for pumping a corrosive liquid. A pump with a brass impeller costs \$800 and is expected to last 3 years. A pump with a stainless steel impeller costs \$1900 and will last 5 years. A rebuild costing \$300 will be required after 2000 operating hours for the brass impeller pump while an overhaul costing \$700 will be required for the stainless steel pump after 8000 hours. If the operating cost of each pump is \$1 per hour, how many hours per year must the pump be required to justify the purchase of the more expensive pump? Use an interest rate of 10% per year. ( 2873 hours per year) 13.19 A waste-holding lagoon situated near the main plant receives sludge daily. When the lagoon is full, it is necessary to remove the sludge to a site located 8.2 kilometers from the main plant. Currently, when the lagoon is full, the sludge is removed by pump into the tank truck and hauled away. This process requires the use of a portable pump that initially cost \$800 has an 8-years life. The company pays a contract individual to operate the pump and oversee environmental and safety factors at a rate of \$100 per day, but the truck and driver must be rented for \$200 per day. The company has the option to install a pump and pipeline to the remote site. The pump would have an initial cost of \$1600 and a life of 10 years and will cost \$3 per day to operate. The company’s MARR is 10% per year. (a) If the pipeline will cost \$12 per meter to construct and will have a 10-year life, how many days per year must the lagoon require pumping to justify construction of the pipeline? (54.3 day per year) (b) If the company expects to pump the lagoon once per week every week of the year, how much money can it afford to spend now on the 10-year-life pipeline to just break even? (P= \$-94,216)