# Project #39486 - Engineering Economics

Problems 2-3, 2-13, 2-14, 2-16, 2-18, 2-20, 2-24, 2-44, 2-57, and 2-58.

Show all work on the problems and save them as an Excel file.  Then submit the solutions to the assigned problems as an attached Excel file.

2-3. A group of enterprising engineering students has developed a process for extracting combustible methane gas from cow manure (don’t worry, the exhaust is odorless). With a specially adapted internal combustion engine, the students claim that an automobile can be propelled 15 miles per day from the “cow gas” produced by a single cow. Their experimental car can travel 60 miles per day for an esti –mated cost of \$5 (this is the allocated cost of the methane process equipment—the cow manure is essentially free).

a.  How many cows would it take to fuel 1,000,000 miles of annual driving by a ï¬‚eet of cars? What is the annual cost?

b.  How does your answer to Part (a) compare to a gasoline-fueled car averaging 30 miles per gallon when the cost of gasoline is \$3.00 per gallon?

2-13. A large company in the communication and publishing industry has quantiï¬ed the relationship Between the price of one of its products and the demand for this product as Price = 150 − 0.01 × Demand for an annual printing of this particular product. The ï¬xed costs per year (i.e., per printing) = \$50,000 and the variable cost per unit = \$40. What is the maximum proï¬t that can be achieved if the maximum expected demand is 6,000 units per year? What is the unit price at this point of optimal demand?

2-14. Alarge wood products company is negotiating a  contract to sell plywood over seas. The ï¬xed cost that canbe allocated to the production of plywood is \$800,000 per month. The variable cost per thousand board feet is \$155.50. The price charged will be determined by p = \$600 − (0.5)D per 1,000 board feet.

a.  For this situation, determine the optimal monthly sales volume for this product and calculate the proï¬t (or loss) at the optimal volume.

b.  What is the domain of proï¬table demand during a month?

2-16. An electric power plant uses solid waste for fuel in the production of electricity.  The cost Y in dollars per hour to produce electricity is Y = 12 + 0.3X + 0.27X2, where X is in megawatts. Revenue in dollars per hour from the sale of electricity Is 15X−0.2X2. Find the value of X that gives maximum proï¬t.

2-18. The world price of zinc has increased to the point where “moth balled” zinc mines in east Tennessee have been reopened because of their potential proï¬tability.

(a) What is the estimated annual proï¬t for a mine producing 20,000 tons per year (which is at 100% capacity) when zinc sells for \$1.00 per pound? There are variable costs of \$20 million at 100% capacity and ï¬xed costs of \$17 million per year.

(b) If production is  only  17,000  tons  per  year,  will  the  mine  be proï¬table?

2-20. A plant operation has ï¬xed costs of \$2,000,000 per year, and its output capacity is 100,000 electrical appliances per year. The variable cost is \$40 per unit, and the product sells for \$90 per unit.

a.  Construct the economic breakeven chart.

b.  Compare annual proï¬t when the plant is operating at 90% of capacity with the plant operation at 100% capacity. Assume that the ï¬rst 90% of capacityout put is sold at \$90 per unit and that the remaining 10% of production is sold at \$70 per unit.

2-24. The ï¬xed cost for a steam line per meter of pipe is \$450X + \$50 per year. The cost for loss of

He at from the pipe per meter is \$4.8 / X 1/2 per year. Here, X represents the thickness of insulation in meters, and X is a continuous design variable.

a.  What is the optimum thickness of the insulation?

b.  How do you know that your answer in Part (a) minimizes total cost per year?

2-44. Which of the following statements are true and which are false? (all sections)

a.  Working capital is a variable cost.

b.  The greatest potential for cost savings occurs in the operation phase of the life cycle.

c.  If the capacity of an operation is signiï¬cantly changed (e.g., a manufacturing plant), the ï¬xed costs will also change.

d.  Anoncash cost is a cash ï¬‚ow.

e.  Goods and services have utility because they have the power to satisfy human wants and needs.

f.  The demand for necessities is more in elastic than the demand for luxuries.

g.  Indirect costs can normally be allocated to a speciï¬c output or work activity.

h.  Present economy studies are often done when the time value of money is not a signiï¬cant factor in the situation.

i.  Overhead costs normally include all costs that are not direct costs.

j.  Optimal volume (demand) occurs when total costs equal total revenues.

k.  Standard costs per unit of output are established in advance of actual production or service delivery.

l.  A  related  sunk  cost  will  normally  affect  the prospective cash ï¬‚ows associated with a situation.

m.  The life cycle needs to be deï¬ned within the context of the speciï¬c situation.

n.  The greatest commitment of costs occurs in the acquisition phase of the life cycle.

o.  High breakeven points in capital intensive indus- tries are desirable.

p.  The ï¬xed return on borrowed capital (i.e., interest) is more risky than proï¬ts paid to equity investors

(i.e., stockholders) in a ï¬rm.

q.  There is no D for this Scenario 1 situation: p =40 − 0.2D and CT = \$100 + \$50D.

r.  Most decisions are based on differences that are perceived to exist among alternatives.

s.  A nonrefundable cash outlay (e.g., money spent on a passport) is an example of an opportunity cost.

2-57. The ï¬xed costs incurred by a small genetics research lab are \$200,000 per year. Variable costs are 60% of the annual revenue.  If annual revenue is \$300,000, the annual proï¬t/loss is most nearly which answer below?

(a) \$66,000 proï¬t  (b) \$66,000 loss

(c) \$80,000 proï¬t  (d) \$80,000 loss

2-58. A manufacturer makes 7,900,000 memory chips per year. Each chip takes 0.4 minutes of direct labor at the rate of \$8 per hour. The overhead costs are estimated at \$11 per direct labor hour. A new process will reduce the unit production time by 0.01 minutes. If the overhead cost will be reduced by \$5.50 for each hour by which total direct hours are reduced, what is

The maximum amount you will pay for the new process?

Assume that the new process must pay for itself by the end of the ï¬rst year.

(a) \$25,017   (b) \$1,066,500   (c) \$10,533

(d) \$17,775   (e) \$711,000

 Subject Science Due By (Pacific Time) 09/08/2014 10:00 pm
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