Engineering Economics Assessment 4

ENGINEERING ECONOMICS
ASSESSMENT 4
1. A concrete hollow blocks (CHB) plant has an overhead cost of 150,000P per month. The material
cost is 3.75 per unit and labor cost 2.25 per unit. How many units should be made per month to
break-even if the selling price is 7-50 per unit.
Given:
C=150,000 P
V =3.75+ 2.25 per unit=6 per unit
S=7.50
Find: x —the no. of units needed at BEP
Solution:
S ( x )=C+V ( x )
7.50 ( x )=150,000+6 ( x )
7.50 ( x )−6 ( x )=150,000
1.50 ( x )=150,000
1.50 ( x ) 150,000
=
1.50 1.50
x=100,000
2. A high voltage gloves manufacturer produces a pair of gloves at labor cost of 15 and a material
cost of 40 a pair. The fixed charges on the business are 90,000P a month and the variable cost are
15 a pair. If the gloves sell for 160 a pair, how many pairs must be produced per month by the
manufacturer to break-even?
Solution:
Break-even is the point where profit becomes zero, TR=TC
Let the total output be Q pair , then,
TR=P × Q=160 P× Q
TC =TFC +TVC =90,000 P+ Q(all cost other than ¿cost which vary withoutput )
TC =90,000 P+Q (15+ 40+15 ) =90,000 P+70 (Q ) P
TC=90,000 P=70 ( Q ) P
Now, for break even, TR=TC
160 Q=90,000+ 70Q
160 Q−70 Q=90,000
90 Q=90,000
90 Q 90,000
=
90 90
Q=1,000
Thus, the manufacturer must produce 1,000 pairs of gloves to break-even.
3. A steel drum manufacturer incurs a yearly fixed operating cost of 2,000,000P. Each drum
manufacturer cost 160P to produce and sells for 200P. What is the manufacturer’s break-even sales
volume in drums per year?
Solution:
200 x=2,000,000+160 x
200 x−160 x=2,000,000
40 x=2,000,000
40 x 2,000,000
=
40 40
x=50,000 P
4 The direct labor cost and direct material cost of certain product are 300P and 400P per unit,
respectively. Fixed charges are 100,000P per month and other variable costs are 100P per unit. If the
product is sold for 1200P per unit, how many units must be produced and sold to break-even?
Solution:
1200 x=100,000+ ( 100+300+ 400 ) x
1200 x=100,000+800 x
1200 x−800 x=100,000
400 x=100,000
400 x 100,000
=
400 400
x=250
5. A local factory assembling calculators produces 400 units per month and sells them at 1800P each.
Dividends are 8% on the 8000 shares with par value of 250P each. The fixed operating cost per
month is 25000P. Other costs are 1000P per unit. Determine the number of units needed to be
produced per month at unhealthy point.
Given:
S=1,800 P
C=25,000 P
V =1,000 P
(
D= ( 8,000 )( 0.08 ) )(
250 P
)
1 year
Share− year 12 months
D=13,333.33
Find: x
Solution:
S ( x )=C+V ( x ) + D
1,800 ( x )=25,000+1,000 ( x )+13,333.33
1,800 ( x )−1,000(x)=25,000+13,333.33
800( x )=38,333.33
800( x) 38,333.33
=
800 800
x=47.92
x=48
6. A certain firm has a capacity to produce 650,000P units of a certain product per year. At present, it
is operating at 62% capacity. The firm's annual income is 4,160,000P. Annual fixed cost is 1,920,000P
and the variable costs are equal to 3.56 per unit. What is the annual profit or loss?
Given:
x=650,000 ( 0.62 )=403,000
S=4,160,000 P
C=1,920,000 P
V =3.56 P
Find: Profit
Profit=sales−capital
Profit=4,160,000−( 1,920,000+ ( 3.56 ) ( 403,000 ) )
Profit=805,320 P
7. A shoe manufacturer produces a pair of shoes at a labor cost of 9OP a pair and materials cost of
80P a pair. The fixed charges of the business are 90,000P a month and the variable cost is 40P a
pair. If the shoes sell for 300P a pair, how many pairs must be produced each month by the
manufacturer to break-even?
Given:
C=90,000 P
V =90+80+ 40=210 P
S=300
Find: x
S ( x )=C+V ( x )
300 ( x )=90,000+210 ( x )
300 ( x )−210 ( x )=90,000
90 ( x )=90,000
90 ( x ) 90,000
=
90 90
x=1,000
8. A plant has capacity of producing 8000 units per month of a product, which it sells for 1.50P per
unit regardless of output. The monthly fixed costs are 2800P and a variable cost of 4800P at 75%
capacity. What is the fixed cost per unit at the break-even point?
Solution:
Output =800 ×75 %=6000
4800
Variable Cost per unit= =0.8
6000
¿ Cost
Break−even point=
Selling Price−Variable Cost
2800
Break−even point=
1.50−0.8
Break −even point=4000 units
2800
¿ cost per unit=
4000
¿ cost per unit=0.70 P per unit
9. A local company assembling stereo radio cassettes produces 300 units per month at a cost of
800P per unit. Each cassette sells for 1200P. If the firm makes a profit of 10% on its 10,000P shares
with a par value of 200P per share, and the total fixed cost per month is 20,000P, what is the break-
even point?
Given:
V =800 P
C=20,000 P
S=1,200 P
(
D= (10,000 )( 0.10 )
200
)( )
1 year
Share− year 12months
D=16,666.66
Find: x
Solution:
S ( x )=C+V ( x ) + D
1,200 ( x )=20,000+800 ( x )+ 16,666.66
1,200 ( x )−800(x )=20,000+16,666.66
400 ( x)=36,666.66
400( x ) 36,666.66
=
400 400
x=91.67
x=92
10. Company A and B manufactures the same article. Company A, relying mostly on machines has
fixed expenses of 12000P per month and direct cost of 8 per unit. Company B, using more hand
work, has fixed expenses of 4000P and direct cost of 20 per unit. At what monthly production rate will
the total cost per unit is the same for the two companies?
Solution:
Suppose the production rate is x
12,000+8 x=4,000+20 x
12,000−4,000=20 x−8 x
8,000=12 x
x=667 units

Engineering Economics Assessment 4

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