ETM 310/610 (Fall 2020)

Homework-2

1. Question no.1: The following data concern a new product to be launched by ABC Inc.

Estimate the selling price per unit.

Labor = 5 hours at $15/ hour

Factory overhead = 150% of labor

Material costs = $25.30

Packing cost = 15% of materials cost

Sales commission = 20% of the selling price

Profit = 26% of the selling price

Solution:
Total labor cost = 5*15 = $75
Factory overhead = 150% of labor
= 1.5*75 = $112.5
Material cost = $25.30
Total manufacturing cost = labor cost*factory overhead*material cost
= 75+112.5+25.30
= $ 212.8
Packing cost = 15% of material cost
= 0.15*25.30
= $ 3.795
Total cost = manufacturing cost + packing cost
= 212.8 + 3.795
= $ 216.595
Selling price = total cost / [1 – (sales commission + profit)]
= 216.595 / [1 – (0.2+0.26)]
= 216.595 / 0.54
= $ 401.10185
Question no.2: Pleasantville is planning to build a new community center that will cover a total
of 20,000 ft2. Earlier this year one covering 40,000 ft2 was built on a similar site in an adjacent
city for $5.5 million. If the power sizing exponent is .8 for this type of facility, what is the
estimated cost of construction?
Solution:
Area of new community center = An = 20,000 ft2
Area of old community center = Ao = 40,000 ft2
Cost of old community center = Co = $ 5.5 million
Power sizing component = n = 0.8
Cost of new community center = Cn =?
Since;
Cn / Co = (An / Ao) n
Cn = (An / Ao) n *Co
= (20,000 / 40,000) 0.8 * 5.5M
= 2.2 M