Benha University Engineering Economics & Financing

Faculty of Engineering at Shoubra 2nd Term 2022/2023

Mechanical Engg. Dept.(2nd Prod.) Assignment No. 1
Subject: Cost Concepts and Break-Even Analysis
[1] For the data presented in the following table, compute the prime cost, factory cost,
total cost, and selling price per item for the year 2021.
Item Description Amount ($)
Inventory as of 12/31/2020 50,000
Inventory purchased during 2021 80,000
Inventory as of 12/31/2021 30,000
Direct labor cost 17,000
Direct engineering cost 13,000
Direct burden 2500
Factory expenses 20,000
Administrative expenses 14,000
Selling and distribution expense 7500
Markup rate 15%
Number of units manufactured 1000 units

[2] A manufacturing company produces 500 pumps. The percent markup is 25%. All
other relevant cost information is provided in the following table. Compute the
production cost and selling price per pump based on this data.
Item Description Amount ($)
Cost of raw material 3,500,000
Direct labor cost 1,200,000
Direct expenses 100,000
Salaries paid to plant manager and staff 300,000
Plant utilities 25,000
Plant and equipment depreciation 65,000
Warehouse expenses 25,000
Office utilities 3750
Office depreciation 7500
Salary paid to plant engineer 15,000
Engineering expenses incurred on the plant 6500
Administrative staff salaries 35,000
Sales staff salaries and commissions 27,500
Percent markup 25%
Number of pumps manufactured 500

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[3] A certain piece of work is produced by a firm in batches of 100. The direct
material cost for that 100-piece work is $180 and the direct labor costs is $210. Factory
on cost is 35% of the total material and labor cost. Overhead charges (Office costs) are
20% of the factory (Manufacturing) cost. Calculate prime cost and factory cost. If the
management wants to make a profit of 25% on the gross cost, determine the selling
price of each article.

[4] An electric fan is available in the market at a catalogue price of 1500 LE. The
discount allowed to the distributor is 12 percent. Administrative and sales overheads
are 80 percent of factory cost. The direct material cost, direct labor cost and factory
overheads are in the ratio of 1:3:2 respectively. If the direct labor cost is 300 LE and
the add value tax 14 percent of the selling price, determine the company’s profit on
each item.

[5] Compute the selling price per unit of product if the fixed cost is $100,000 per year.
The variable cost of the product is $35/unit and the markup rate is 10%. A total number
of 1000 units of the product are manufactured.

[6] An electronics manufacturer is trying to determine the selling price for some
electronic equipment. The fixed cost for manufacturing the equipment is $50,000 per
year. The variable cost is $25/unit. Compute the selling price per unit if the desired
markup rate is 35% and 1200 units are manufactured.

[7] An assembly operation is performed by a worker at a direct labor cost of $2.00 per
unit. A robotic assembler costing $20,000 can perform the same task and reduce the
direct labor cost to $0.25 per unit. The assembler will have no value at the end of its
useful life of five years and can be disposed of at that time. Determine the minimum
number of units that must be assembled each year in order to justify investing in the
machine.

[8] A company has an installed capacity of 12,000 units per annum. They are
operating at about 35% of the installed capacity. For certain year, they have budgeted
as follows: Production/Sales = 9000 units; Direct material cost= $1,600,000; Direct
labor=$82000. Factory expenses=$960,000, Administrative expenses= $400,000;
Selling expenses= $300,000 and Profit= $1,800,000. Factory expenses as well as
selling expenses are variable to the extent of 20%. Calculate the break-even point as %
of installed capacity.

[9] The following information is available for two machines in a manufacturing unit:

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 Machine I Machine II
Item of expenditure
(Capstan lathe) (Automatic lathe)
Tooling cost (LE) 1200 3,200
Operating labor cost (LE/hour) 20 4
Cycle time (min/piece) 15 3
Setting up cost (LE) 80 600
Overheads (LE) 120 1,000
Maintenance cost (LE/hour) 24 100
Power charges (LE/hour) 8 16
Draw the break-even chart for the two machines and find out break-even quantity. Also
find out which process is suitable for producing 4,000 items.

[10] The costs for three different process designs for an automated welding
application have been presented in the following table.
Production Process Fixed Cost/Year ($) Variable Cost/Year ($/unit)
U 200,000 40.00
V 700,000 22.00
W 1,250,000 17.00
Compute the range of annual production over which each alternative should be used.
The company wishes to manufacture a total of 350,000 units. Chart your answer
graphically.

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