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Sheet 1 Engineering Economy

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12 views

Sheet 1 Engineering Economy

Uploaded by

salman.2004.noor
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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COLLEGE OF ENGINEERING & TECHNOLOGY

Department: Basic and Applied Sciences Department


Engineering Economy NE 364

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Sheet 1
Cost concept and the economic environment

Case (1):

1- A company produce circuit boards used to update outdated computers


equipment. The fixed cost is $42,000 per month, and the variable cost is $53 per
circuit board. The selling price per unit is p = $150 – 0.02D .

a- Determine optimum demand for this product.


b- What is the maximum profit per month ?
c- At what volumes does breakeven occur ?
d- What is the company’s range of profitable demand ?

2- Suppose we know that p = 1,000 – D/5, where p = price in dollars and D =


annual demand. The total cost per year can be approximated by $1,000 + 2D 2.

- Determine the value of D that maximizes profit.

3- A company has established that the relationship between the sales price for one
of its products and the quantity sold per month is approximated D = 780 – 10p
units. (D is the demand or quantity sold per month, and p is the price in dollars).
The fixed cost is $800 per month, and the variable cost $30 per unit produced.

a- What number of units should be produced per month to maximize net profit?
b- What is the maximum profit per month?
c- Determine breakeven points.
d- What number of units should be produced per month to maximize total
revenue ?
e- What is the maximum total revenue ?

1
COLLEGE OF ENGINEERING & TECHNOLOGY
Department: Basic and Applied Sciences Department
Engineering Economy NE 364

-------------------------------------------------------------------------------------------------------------------------------
4- A company produces computers equipment. The variable cost per unit is $40D.
The fixed cost can be considered negligible. The price charged per unit will be
determined by the equation p = $180 – 5D, where D represents demand in units
sold per week.

a- What is the optimum number of units should be produced in order to


maximize profit?
b- What is the profit if the optimum number of units are produced?
c- Calculate the profit or loss when D = 5.

5- A company has determined that the price and monthly demand of one of its
products are related by the relation; D = √(400 − 𝑃) , where p is the unit price in
$ and D is the monthly demand. The fixed cost is $1125/month and the variable
cost $100/unit.

a- The demand at maximum profit.


b- The maximum profit.
c- The breakeven points.

6- A company produces and sells a consumer product and is able to control the
demand for the product by varying the selling price. The approximate relationship
between price and demand is;
2700 5000
P = $38 + –
𝐷 𝐷2

Where p is the price per unit in dollars and D is the demand per month. The
company is seeking to maximize its profit. The fixed cost is $1,000 per month and
the variable cost is $40 per unit.

- What is the number of units that should be produced to maximize profit ?

2
COLLEGE OF ENGINEERING & TECHNOLOGY
Department: Basic and Applied Sciences Department
Engineering Economy NE 364

-------------------------------------------------------------------------------------------------------------------------------
Case (2):

7- An industrial plant is analyzing the cost parameters of a product. If the fixed


cost is $2024000, unit variable cost $62/hr and unit price $85.56/hr, Determine;

a- Breakeven point (BEP).


b- What percentage reduction will occur in the breakeven point(Sensitivity) if ;

i- Fixed cost is reduced by 10%.


ii- Unit variable cost is reduced by 10%.
iii- Fixed cost & Unit variable cost is reduced by 10%.
iv- Unit price is increased by 10%.

8- A company is analyzing the cost parameters of a product. The fixed cost is


$16000, unit variable cost is $8 and unit selling price is $12. Find;

- Find the Breakeven point (BEP) and profit or loss , if the demand is 3600 unit.

9- A plant operation has fixed costs of $1000000 per year and its output capacity is
50000 unit per year. The variable cost is $20 per unit and the selling price is $60
per unit.

i- Calculate the breakeven point.


ii- Calculate the annual profit if the plant operates at 80% capacity.
iii- Calculate the % change in the breakeven point if the unit variable cost is
reduced by 5% and the selling price is increased by 15%.

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