Chapter 2 Engineering Costs and Cost Estimating

1. A manufacturing firm's specialty circuit board division has annual fixed costs of $100,000 and variable costs of $20.00 per board. If they charge $100 per circuit board, how many circuit boards must they produce and sell in order to break even?

a. As many boards as possible b. 5 c. 1,000 d. 1,250 2. All of the following are usually included in an engineering economic analysis except a. Fixed costs b. Variable costs c. Sunk costs d. Total revenue 3. A company manufactures electrical metering devices that monitor power quality. The company"s fixed cost is $68,000 per month. The variable cost is $80 per metering device. The selling price per device can be modeled by S = 170 " 0.05 Q, where S is the selling price and Q is the number of metering devices sold. How many metering devices must the company sell per month in order to realize a maximum profit? a. 900 metering devices b. 1800 metering devices c. 3400 metering devices d. As many metering devices as it can 4. A large utilities contractor bought five used trucks for $100,000 from a smaller bankrupt utilities contractor. Six years ago, the vehicles were purchased for $300,000. It is estimated that the annual maintenance costs for the vehicles will be $1,500 per year and each vehicle will have a salvage value of $5,000 in four years. Which of the following would the large utilities contractor not include in her economic analysis?

a. Original purchase price of $300,000 b. The used purchase price of $100,000 c. The annual maintenance costs of $1,500 d. The salvage value of the vehicles 5. In breakeven analysis, the profit at the breakeven point is equal to a. The total cost b. Zero

Economics for Engineers/HU501/Prof. Aditi Ghosh

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c. The total revenue d. The variable cost multiplied by the number of items sold

Chapter 2 Engineering Costs and Cost Estimating Answers

1. A manufacturing firm's specialty circuit board division has annual fixed costs of $100,000 and variable costs of $20.00 per board. If they charge $100 per circuit board, how many circuit boards must they produce and sell in order to break even? The correct answer is: d. 1,250. References: Solution: To break even, total costs = total revenue, where total costs = total fixed costs + total variable costs. $100,000 + $20X = $100X. X = $100,000/$80 = 1250 circuit boards. 2. All of the following are usually included in an engineering economic analysis except The correct answer is: c. Sunk costs. References: Solution: Fixed and variable costs are usually part of the total costs considered while revenue is part of the benefits. Sunk costs, however, are costs incurred as a result of a former decision and are not included in an economic analysis of a current project. So, the answer is (c). 3. A company manufactures electrical metering devices that monitor power quality. The company"s fixed cost is $68,000 per month. The variable cost is $80 per metering device. The selling price per device can be modeled by S = 170 " 0.05 Q, where S is the selling price and Q is the number of metering devices sold. How many metering devices must the company sell per month in order to realize a maximum profit? The correct answer is: a. 900 metering devices . 4. A large utilities contractor bought five used trucks for $100,000 from a smaller bankrupt utilities contractor. Six years ago, the vehicles were purchased for $300,000. It is estimated that the annual maintenance costs for the vehicles will be $1,500 per year and each vehicle will have a salvage value of $5,000 in four years. Which of the following would the large utilities contractor not include in her economic analysis? The correct answer is: a. Original purchase price of $300,000. References: Solution: The original purchase price of $300,000 (answer (a)) is considered a sunk cost and is irrelevant to the economic analysis for the large utilities contractor. She should only be concerned with the costs that directly impact her business now such as the salvage value of the vehicles, her purchase price of $100,000, and the annual maintenance costs. 5. In breakeven analysis, the profit at the breakeven point is equal to The correct answer is: b. Zero. References: Solution: In economic analysis, the breakeven point is the point at which the total revenue is equal to the total cost and neither a profit nor a loss is incurred. Thus, since total revenue " total cost = total profit and both revenue and cost are equal, the total profit must be zero, so (b) is the correct answer.

Economics for Engineers/HU501/Prof. Aditi Ghosh

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