MODULE-I

Introduction to Industrial Engineering - Evolution of modern Concepts in Industrial

Engineering - Functions of Industrial Engineering - Field of application of Industrial
Engineering - Design function - Objectives of design- Development of designs- prototype,
production and testing - Human factors in design - Principles of good product design-
tolerance design- quality and cost considerations- product life cycle- standardization,
simplification, diversification- concurrent engineering- comparison of production
alternatives - Economic aspects- C-V-P analysis – simple problems.

1.1 Industrial Engineering (IE):

IE determines the most effective ways of to use the basic resources (4Ms) of
production such as Men, Machines, Materials and Money. IE is concerned with the design,
improvement and installation of integrated systems of men, machines, materials and energy. IE
is regarded as the art of utilizing scientific principles, psychological data and physiological
information to design, improve and integrate industrial, management and human operating
procedures.

1.2 Evolution of Industrial Engineering:

Earlier, there was no established manufacturing industry during the pre-industrial

revolution phase and the concept of factory only had existed. The evolution of IE started in
England during the mid-18th century, which later spread gradually throughout Europe and to
the United States. Prior to industrial revolution, manufacturing was often done using hand
tools or basic machines. Industrialization marked a shift to powered, automated, special
purpose machineries, factories and led to mass production.

Sl no Contributors Contribution

His Article the wealth of nations concerns with the

1 Adam Smith (1776) division of labour which became an important factor
revealing them in the forthcoming industrial revolutions

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 Charles W Babbage Wrote “On the economy of machinery and
2
(1832) manufactures”

His work was concerned with the productivity concepts.

He proposed a more rational and planned approach to the
3 F W Taylor (1881) production and shop management problems. His work
was mostly focused on planning and organization of
work.

His priority was on the economic features and

Henry R Towne
4 responsibilities’ of the engineers job in a paper that he
(1882)
presented to the ASME

Frederick A Halsey Father of the Halsey premium plan of wage payment

5
(1891)

He laid his ground work on developing activities in the

6 Henry L. Gantt (1910) industrial engineering and was the originator of Gantt
Chart.

Frank Gilbreth and Their work is mostly focused on improving the work
7 Lillian Gilbreth efficiency through method study
(1885)

He was awarded by cornell university for his research in

8 Ralph M Barnes
the area of motion study

9. L H C Tippett He developed the concept of work sampling (Time study)

George Bernard He is regarded as father of linear programming

10
Dantzing

11 Henry Ford He introduced the concept of mass production

The modern IE techniques had their origin during the mid-20th Century and it includes:
Value Engineering, Operations Research, Ergonomics, System Analysis, Advances in IT and
Computer Packages and Mathematical & Statistical Tools.

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1.3 Functions of Industrial Engineering:

According to American Institute of Industrial Engineers, the functions of IE are:

 Method study: Used to establish a standard method of performing a job.

 Work Measurement: Also called Time Study, and is used to establish a standard time for
a job.
 Motion Economy: Used to study the motions employed by the operators to carry out the
job.
 Incentives: Helps to ensure fair compensation for the effort of employees.
 Value Analysis: Used to ensure that no unnecessary costs are built into a product.
 Production Planning & Control: Employed to ensure the production of products of
right quality and quantity in the right time to meet the customer demands.
 Inventory Control: Used to manage the quantity of stock.
 Job Evaluation: Used to compare the relative worth of different jobs in an organization.
 Material Handling Analysis: Used to analyze and examine the movement of materials in
a plant.
 Ergonomics: Also referred as Human Engineering and is mainly concerned with the
human factors while designing a workplace.
 Systems Analysis: Used to study various sub-systems and helps to design, modify and
improve its efficiency and effectiveness.
 Operations Research Techniques: Used to find optimal solutions to problems based on
a set of objectives and constraints imposed on a problem under consideration.

1.4 Applications of Industrial Engineering:

IE is engineering approach to the detailed analysis of the use and cost of the resources
(4Ms) of an organization. IE finds wide applications in manufacturing as well as in service
sectors:
Manufacturing Sector:
 Formulation of production plan, goal and targets.
 Control of production processes.
 Inventory control.
 Design of appropriate layout for factories.
 Scheduling of machines and processes.

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Service Sector:
 Hospital management
 Airline management
 Banking management
 Transportation problems
 Optimal use of resources in an organization

1.5 Role of Industrial Engineer

No Roles Functions
Available to others for interpretation of data, reviews
1 Advisor/Consultant
etc.
2 Advocate/Activist Actively sup[ports a process or approach
Separates and examines a whole in to parts to explore
3 Analyst
them for insight and characteristics
Gives a boost and skill availability to a group or a
4 Motivator
individual
Chooses and prioritizes among many other topics of
5 Decision maker
concern
6 Designer/Planner Provides a solution specification
Gives a high level knowledge, skill and experience on
7 Expert
particular topic
Ensures efficient work by negotiating with the other
8 Coordinator and integrator
and working together effectively.
Attempts to make or build a creative or advanced
9 Innovator/Inventor
technology solution
10 Measure Acquires data and facts about prevailing conditions
11 Project Manager To carryout, administrator and assess projects
Having the skills and knowledge of industrial
12 Trainer/Educator
engineering
13 Data gatherer To collect data
Negotiates so that best solution is used and good
14 Negotiator
results are obtained.

1.6 Product Design Process:

Product means a marketable thing with some utility. The product design process is the
transformation of ideas, needs or requirements by consumers or the market place into a
product that satisfies the needs.

Product design/development process generally follows the following sequence:

 Conception (Idea Generation): During this stage, the needs of the target market are
identified, competitive products are reviewed, draft product specifications are identified, a
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 product concept is selected, an economic analysis is done and the development of the
project is outlined.
 Acceptance: At this stage, the draft specifications are reviewed for acceptance or rejection
and modifications are incorporated.
 Execution: At this stage, the development and testing of working prototype (or model) as
per the accepted specifications are done.

 Translation: At this stage, all relevant information such as material specifications,

drawings, manufacturing data, and tooling requirements are finalized and the finalized
product design is approved for manufacturing.

 Pre-production: At this stage, pilot tests are conducted prior to actual production that
helps in fault detection and finally, approved prior to the commencement of actual
manufacturing process.

1.7 Design Function:

Design function refers to the behaviours that are expected from the design. In
engineering design, functions can be classified into:

 Basic Function: The primary purpose for which the item or service is designed, when it is
operated in its normal prescribed manner.
 Secondary Function: The functions that support the basic function and are also referred
as support functions. They can be required or unwanted types. Required function means
those needed functions to aid in accomplishing the basic function (generation of light in
LCD projector). Unwanted functions are related to the undesirable byproducts of either
basic or secondary function (generation of heat in LCD projector).

1.8 Objectives of Design:

 To generate profit.
 To satisfy customer requirements, at minimum overall cost and time.
 To achieve desired product quality.
 To enable the product or service to perform its desired function as intended
 To allow the product to be used with minimum possible fatigue.
 To allow the product to be used with minimum noise, vibration and other hazards.
 To ensure manufacturability.
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 To be flexible for standardization and simplification.
 To provide repair and maintenance at low cost.

1.9 The Ten Principles of Good Product Design:

 Innovative: Product innovation measures can be applied to both new as well as existing
products.
 Useful: The usefulness of the product without further modification must be ensured.
 Aesthetic: The product must be reasonably and fairly beautiful and appealing to the end
users.
 Understandable: End users prefer products that are easily understandable.
 Honest: The features mentioned in the specifications of a product must be present in it.
 Long Lasting: Good design is ageless.
 Environmentally Friendly: A good design must conserve resources and minimize
pollution, in every manner, to environment throughout the life cycle of the product.
 Detailed Focus: Respect the customers by giving them flawless products.
 Have as little design as possible: The simplicity of design must be reflected in the product.
 Attracting Attention: The design must be pleasing to look at, but not demand attention
other than the fact that is useful.

1.10 Development of Design-Prototyping:

A prototype is a model of a system or component developed for the purpose of
demonstrating the performance and functionality. Prototyping helps to i) Correct the design at
the early stages; ii) Develop procedures/methodologies for the product; iii) Detect errors
while interpreting engineering drawings; iv) Demonstrate new/modified products.
1.10.1 Rapid Prototyping:
Rapid prototyping works on virtual designs from CAD based softwares, transforms
them into thin, virtual, horizontal cross sections and then creates each cross section in
physical space, one after the other until the model is finished. Rapid Prototyping can create
models in few hours as compared to conventional methods. However, dimensional accuracy
and surface finish are poor in rapid prototyping and also the process is costly. Rapid
prototyping finds applications in numerous areas and a few areas are: automotive, aerospace,
medical and consumer products industries.

1.10.2 Definition of production system

Production system may be defined as,

"The methods, procedure or arrangement which includes all functions required to
accumulate (gather) the inputs, process or reprocess the inputs, and deliver the marketable
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output (goods)."
Production system utilizes materials, funds, infrastructure, and labour to produce the
required output in form of goods (5Ms).
MEN, MATERIAL, MACHINE, MONEY & METHODS
Production system consists of three main components viz., Inputs, Conversion Process
and Output.
Inputs include raw-materials, machines, man-hours, components or parts, drawing,
instructions and other paper works.
Conversion process includes operations (actual production process). Operations may
be either manual or mechanical or chemical. Operations convert inputs into output.
Conversion process also includes supporting activities, which help the process of conversion.
The supporting activities include; production planning and control purchase of raw-materials,
receipt, storage and issue of materials, inspection of parts and work-in-progress, testing of
products, quality control, warehousing of finished products, etc.
Output includes finished products, finished goods (parts), and services.
The three components of a production system are depicted in this diagram

1.10.3 Classification of Production Systems

Production systems can be classified as Job-shop, Batch, Mass and Continuous
production systems.

Fig. 1 Classifications of production systems

[Link] Job-Shop Production

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 Job-shop production are characterized by manufacturing one or few quantity of
products designed and produced as per the specification of customers within prefixed time
and cost. The distinguishing feature of this is low volume and high variety of products.

Job-shop Production is characterized by:

1. High variety of products and low volume.

2. Use of general purpose machines and facilities.

3. Highly skilled operators who can take up each job as a challenge because of uniqueness.

4. Large inventory of materials, tools, parts.

5. Detailed planning is essential for sequencing the requirements of each product, capacities
for each work centre and order priorities.

Advantages

Following are the advantages of Job-shop Production:

1. Because of general purpose machines and facilities variety of products can be produced.
2. Operators will become more skilled and competent, as each job gives them learning
opportunities.
3. Full potential of operators can be utilized.
4. Opportunity exists for Creative methods and innovative ideas.
Limitations
Following are the limitations of Job-shop Production:
1. Higher cost due to frequent set up changes.
2. Higher level of inventory at all levels and hence higher inventory cost.
3. Production planning is complicated.
4. Larger space requirements.
[Link] Batch Production

Batch Production as a form of manufacturing in which the job pass through the functional
departments in lots or batches and each lot may have a different routing. It is characterized by
the manufacture of limited number of products produced at regular intervals and stocked
awaiting sales.

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Batch Production is characterized by

1. Shorter production runs.

2. Plant and machinery are flexible.
3. Plant and machinery set up is used for the production of item in a batch and change of set
up is required for processing the next batch.
4. Manufacturing lead-time and cost are lower as compared to job order production.
Advantages
Following are the advantages of Batch Production:
1. Better utilization of plant and machinery.
2. Promotes functional specialization.
3. Cost per unit is lower as compared to job order production.
4. Lower investment in plant and machinery.
5. Flexibility to accommodate and process number of products.
6. Job satisfaction exists for operators.
Limitations
Following are the limitations of Batch Production:

1. Material handling is complex because of irregular and longer flows.

2. Production planning and control is complex.
3. Work in process inventory is higher compared to continuous production.
4. Higher set up costs due to frequent changes in set up.
[Link] Mass Production

Manufacture of discrete parts or assemblies using a continuous process are called Mass
Production. This production system is justified by very large volume of production.

Mass Production is characterized by

1. Standardization of product and process sequence.

2. Dedicated special purpose machines having higher production capacities and output rates.
3. Large volume of products.
4. Shorter cycle time of production.
5. Lower in process inventory.
6. Perfectly balanced production lines.
7. Flow of materials, components and parts is continuous and without any back tracking.
8. Production planning and control is easy.
9. Material handling can be completely automatic.
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Advantages
Following are the advantages of Mass Production:
1. Higher rate of production with reduced cycle time.
2. Higher capacity utilization due to line balancing.
3. Less skilled operators are required.
4. Low process inventory.
5. Manufacturing cost per unit is low.
Limitations
Following are the limitations of Mass Production:
1. Breakdown of one machine will stop an entire production line.
2. Line layout needs major change with the changes in the product design.
3. High investment in production facilities.
4. The cycle time is determined by the slowest operation.

1.11 Ergonomics
Ergonomics is concerned with designing and improving the workplace, work station,
tools, equipment, job design, psychological environment and procedures of work in order to
limit fatigue, discomfort and injuries, while efficiently achieving personal and organizational
goals.
Man-machine system is a combination of one or more human beings and one or more
machine interacting to give some desired outputs from some given inputs. It can be: i) Manual
system; ii) Mechanical system or iii) Automated system.
The considerations while designing a workplace for human must include: i)
Dimensions of the working surface; ii) Dimensions of the working place; iii) Workplace
height and iv) Selection of chairs.
Human factors to be considered while designing a product must include: i) Follow key
ergonomics standards; ii) Incorporate innovative ideas coined by end users; iii) Considerations
must be given to the body standards of human; iv) Design must consider operability and
maintainability and v) Design must consider conditions like upsets and emergencies.
1.12 Quality:
Quality is defined as fitness for purpose. Quality of a product developed or service
rendered refers to the degree of conformance to the specified performance standards. Factors
affecting quality are Markets, Men, Money, Management, Materials, Machines and Methods.
1.13 Cost Considerations:

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 Cost of quality refers to the cost associated with the prevention, discovery and
resolving of defects in parts. Such cost can arise out of non-conformity to the desired quality
level at different stages of development and use of the product such as design, manufacturing,
shipping or even at the end consumer.
Cost of quality is divided into four categories as follows:
 Cost of Prevention: Refers to the cost associated with personnel engaged in designing,
implementing and maintaining the quality system. It includes cost of quality planning,
documenting, process control, training, preventing defects and investigation.
 Cost of Appraisal: Refers to the cost of evaluating quality and of identifying and
segregating non-conforming parts and assemblies. It includes cost of inspection and
testing, checking labour, maintenance and calibration of inspection equipment, quality
audits and evaluation of field stock and spare parts.
 Cost of Internal Affairs: Refers to the cost associated with the defective products that fail
to meet the quality requirements. It includes cost associated with scrap, rework and repair,
re-inspection and retest
 Cost of External Affairs: Refers to the cost associated with the defective products being
shipped to the customers. It includes cost of processing complaints from customers,
Inspecting and repairing the defective items returned by customers, replacing the defective
materials or products, etc.

1.14 Product Life Cycle (PLC):

PLC refers to the period from the product’s first launch into the market until its final
withdrawal and any PLC has four stages

 Introduction Stage: The stage refers to the introduction of the product into the market.
When a product is introduced into the market the demand will be low until customers
become aware of the product’s benefits through advertisements and by other means. Here,
the primary goal is to establish a market and build primary demand for the product class.
 Growth Stage: The products that survive the earlier stages tend to spend the longest in
this stage. The growth phase is characterized by rapid growth in sales and profits, as more
customers become aware of its benefits and additional market segments are targeted.
 Maturity Stage: During maturity stage, the sales growth reaches most profitable stage and
above which it will not grow. This is due to the market share taken by the competitor’s
product. Here, the primary goal is to maintain market share and extend PLC.
 Decline Stage: At the decline stage, more innovative products are introduced or customers
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 taste have changed. At the decline stage, sales begin to decline as the market becomes
saturated, the product becomes technologically obsolete, or customer tastes change.

1.15 Standardization:

A standard is a basis for comparison and according to BIS standard is a document,

established by consensus (common agreement) and approved by a recognized body that
provides, for common and repeated use, rules and guidelines for activities or their results,
aimed at the achievement of the optimum degree of order in a given context. The different
levels of standards are: Company, National (ISI, BIS) and International (ISO 9000)
Standards.

1.15.1 Needs of Standardization:

 Interchangeability: Refers to the suitability of a product, process or service to be used in

place of another to fulfill a relevant requirement.
 Product Quality Standards: Standardization can ensure certain levels of product quality.
 Reduces Manufacturing Cost: By standardization, companies can reduce their
purchasing cost considerably and also the cost of inventory.
 Health & Safety of Consumers: Standardization ensures safety aspects.
 Variety Reduction: Standardization helps to optimize the number of sizes, grades and
practices to meet prevailing needs.
 Improved Utilization of Resources: Standardization helps in achieving maximum
overalleconomy through better utilization of resources.

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 Enhanced Communication and Understanding: Standardization provides means of
communication which are to be used between different parties.

1.16 Simplification:

A term closely related to standardization and is focused on different methods to

reduce the varieties of products manufactured. Simplification is concerned with the reduction of
product range, assemblies, parts, materials and design.

The key advantages of simplification are: i) Fewer varieties of products and hence,
reduces manufacturing operations; ii) Reduces variety; iii) Reduces inventory and iv) Reduces
the price of a product, as the production cost is decreased.
1.17 Diversification:

Product simplification and product diversification are contrary to each other. Product
diversification is done in two ways: either by adding a product to an existing product line and
by creating an additional product line. Diversification tends to increase the complexity of the
methods of manufacturing, because, sometimes consumers like to have variety in type and
quality of products being manufactured.
Advantages of product diversification include: i) Increase in customer base; ii)
Improvement in the effectiveness of the organization; and iii) Improves the standards of living
of the society. Disadvantages include: i) Production process becomes quite complex and
expensive; ii) Size and variety of items in the inventory increases; and iii) Workers of different
types of skill and expertise is required.

1.18 Concurrent Engineering:

Concurrent engineering refers to an approach to product development, in which

companies attempt to reduce the elapsed time required to bring a new product to a market by
integrating design, manufacturing and other functions in the company. In concurrent
engineering, manufacturing planning begins while the design of the product is being
developed. Other sectors related to the product development are also concurrently involved in
the process, so that products of high quality are delivered to customers quickly in a better and
cheaper manner.

1.18.1 Principles of Concurrent Engineering:

 Teamwork: Collaboration, co-operation and interpersonal relationships highly matter.

 Multidisciplinary Team: Demands people from diversified fields of expertise.

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 Effective Communication: All members of the crew must be aware of what other members
are doing.
 Management Support: Proper management support is highly essential.

Benefits of concurrent engineering include: i) Eliminates multiple design reworks; ii)

Business can gain competitive advantage over competitors; iii) Enhances productivity; iv)
Decreases design and development time and v) Enhances chances of succeeding product in
market.
1.19 Comparison of Production Alternatives:

The basic alternatives to be compared are whether to manufacture the product

internally or to purchase from outside the organization. The following situations demand for
the evaluation of manufacture or purchase decisions: i) The organization wishes to introduce
new products; ii) Demand fluctuations; iii) Organization thinks of carrying out value analysis
or cost reduction strategies; iv) Supplier commitment to prompt and quality products delivery is
doubted and v) Scarcity of funds for investment in additional plant and equipment.

Factors influencing manufacture or purchase decision are:

 Volume of Production: Higher volume favors make decision and lower volume favors
buydecision.
 Cost Analysis: A proper analysis of the cost associated with regard to the make (material,
direct labour, set up, depreciation, interest, insurance, taxes, inventory cost, etc.) or buy
(purchase, transporting, ordering and carrying, taxes, inspection, etc.) decision helps in
arriving at an acceptable conclusion.
 Utilization of Production Capacity: Large production capacity favors the decision to
manufacture.
 Integration of Production System: The vertical integration favors manufacture decision
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 and horizontal integration favors buy decision.
 Availability of Manpower: Availability of skilled competent manpower favors make
decision.
 Fixed Cost: A lower fixed cost favors the decision to manufacture and high cost favors
the decision to purchase.
1.20 Economic Aspects:

Cost is the amount of resources sacrificed or given up to achieve a specific objective,

which may be the acquisition of goods or services. Costs can be fixed (do not change for a
given period in spite of change in volume of production) or variable (vary directly and
proportionally with change in volume)
The costs of production include:

 Purchase costs of raw materials and subassemblies, procurement and transportation costs.
 Purchase costs of supplies such as oils, lubricants, machine spares, cotton waste, etc.
 Wages and salaried paid to direct production workers, maintenance, inspection, stores
staff, supervisors and other staff.
 Costs paid to subcontractors for orders placed on them.
 Costs of production line rejections, wastage and rework.
 Expenses towards rent and insurance of company.
 Interest on working capital.
 Cost of procurement of capital assets and their associated depreciation.

1.20.1 Analysis of Production Costs:

 Direct Material Cost: Includes the cost associated with the materials that can be directly
identified in the production.
 Direct Labour Cost: Includes the cost associated with direct workers of the organization.
 Production Overhead Cost: Overhead cost means all associated indirect cost other than
direct cost.
1.21 Break Even Analysis (BEA):

BEA is used to study the relationship between the total cost, total revenue and total
profits and losses over the whole range of output. BEA simply represents at what level of
output/sales volume, costs and revenues are equal. Break Even Point (BEP) is the sales volume
at which total revenues and total expenses are equal. BEP is the point of zero profit. BEP is
utmost important for make or buy decision making and it simply represents the minimum
level of production which the firm has to undertake to become profitable.

1.21.1 Significance of Break Even Analysis (BEA):

 BEA explains the relationship between cost, production volume and returns.
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 BEA indicates the lowest amount of business activity necessary to prevent losses.
 BEA helps the firm in planning its new product development and profit planning.
 The targeted sales quantity helps to decide the purchase, inventory and management.
 Safety margin helps to understand he extend to which the firm can withstand their fall in
sales.

1.21.2 Assumptions of BEP:

 Production and sales are the same and hence there’s no inventory remaining at the end.
 Fixed cost is same irrespective of sales volume.
 Variable cost varies in proportional to the volume of production.
 Selling price per unit remains the same irrespective of the quantity being sold.

1.21.3 Expression to find out BEP:

Let ‘F’ be fixed cost; ‘v’ be variable cost; ‘s’ be the selling price per unit and ‘Q’ quantity (sales
volume)

Total Cost, T = Fixed Cost + Variable Cost = F + (v x Q) (1)

Sales Revenue = s x Q---------- (2)

At BEP, Total Cost, T = Sales Revenue;

i.e., F + (v x Q) = s x Q (3)

or F = Q x (s-v)

BEP, in units of sales/production volume, Q 𝐅 units -----------------------------------(4)

=
𝐬−𝐯
BEP, in terms of sales revenue = BEP in
units x Selling Price per unit = Q x s --- (5)

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1.21.4 Break Even Chart:
Break even chart shows the relationship between cost, volume and profit. BEP is the
point on the break even chart at which the total cost and the total revenue lines intersect. Onthe
break even chart, a plot is drawn keeping sales/production volume on the X-axis and total
revenue/total cost on the Y-axis. On the break even chart, if the total revenue line lies below
the total cost line, a loss region is defined. But, if the total revenue line lies above the total
cost line, a profit region is defined. The break even chart is usually drawn up to the budgeted
sales volume. The amount of profit/loss at any given output can be read off the chart. By
multiplying the sales volume by the unit price at the break even point, the level of revenue
needed to break even can be identified.

1.21.5 Margin of Safety:

Margin of safety is the number of sales units by which actual sales can fall below
planned sales without resulting in a loss. In other words, margin of safety is how much output
or sales level can fall before a business reaches a break even point.
Margin of safety in units = Actual Sales – BEPsales
1.22 Cost-Volume-Profit (C-V-P) Analysis:
C-V-P analysis is concerned with the effect of change in costs, volume and selling
price on profits. It is a useful technique for planning the profits, pricing decisions, sales mix
decisions and production capacity decisions.
A Profit-Volume (P-V) graph is used along with break even chart. Profit/loss is
plotted along the Y-axis and sales quantity or sales revenue is plotted along the X-axis. A
horizontal line is drawn on the graph to separate profits from losses. Profits and losses at
different sales

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level are plotted and are connected by straight line. The BEP is located at the point where the
profit line intersects the horizontal line. The P-V graph shows the relationship between
volume of sales and profit. The P/V ratio shows the amount of contribution to profit per Rupee
of sale.
Contribution
P/V Ratio =
Sales

Example 1.1: A manufacturing firm incurs a fixed cost of Rs.17000. The variable costs Rs. 9
per unit and selling price is Rs.15. Determine the number of products to be produced for
reaching break even.

Solution:
Fixed cost, F = Rs. 17,000
Variable cost, v = Rs. 9 per
unit Selling price, s = Rs. 15
per unit F 17000 = 2,834 units
=
BEP, in units of production volume, Q = 15−9
s−v
Example 1.2: The financial details of a company are as follows: Variable cost per unit is Rs.
30, Selling price per unit is Rs. 40, Fixed expenses is Rs. 1,00,000. Calculate: i) The break
even units; ii) Margin of safety considering the actual sales as 15,000 units; iii) The selling
price per unit, if BEP is brought down to 8,000 units.

Solution:
Fixed cost, F = Rs. 1,00,000
Variable cost, v = Rs. 30 per
unit Selling price, s = Rs. 40 per
unit
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 F 1,00,000
i) BEP, in units of production volume, Q =
40−30 = 10,000 units
= s−v
ii) Margin of safety = Actual Sales – BEPsales = 15,000-10,000 = 5,000 units
F 1,00,000
iii) If BEP is brought down to 8,000 units, i.e., Q = 8,000 =
s−30
= From which, Selling price, s = Rs. 42.5 s−v

Example 1.3: Thejus Associates has the following details. Fixed cost = Rs.20,00,000,
Variable cost per unit = Rs.100, Selling price per unit = Rs.200. Find the following. a) The
break-even sales quantity, b) The break-even sales. If the actual production quantity is
60,000, find c) Contribution; and d) Margin of safety.
Solution:
Fixed cost, F = Rs.20,00,000;
Variable cost per unit, v =
Rs.100;Selling price per unit, s =
Rs.200
F 20,00,000
a) BEP, in units of production volume, Q = = 20,000 units
= 200−100
s−v
b) BEP, in terms of sales revenue = BEP in units x Selling Price per unit
= Q x s = 20.000 x 200 = Rs. 40,00,000
c) Contribution = Sales revenue — Total variable costs
= (s x Q) - (v x Q) = (200 x 60000) – (100 x 60000) = Rs.60,00,000
d) Margin of safety = Actual Sales – BEPsales = (200 x 60,000) — 40,00,000 = Rs.
80,00,000

Example 1.4: Demand for a component is at the rate of 6,000 per year and this demand is
going to continue for next years. The company has two options. It can get the component
manufactured from outside or it can manufacture in house. It costs the company Rs. 2.8 per
unit to buy the component. The in-house manufacturing will incur a fixed cost to the extent of
Rs. 10,000 and variable cost of Rs.1.5 per unit. Give the decision rule for make or buy.

Solution:

Given, Fixed cost (F) = Rs.10000, Variable cost, v = Rs.1.5/unit, Price of unit (s) = 2.8 per unit;
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Let, Q be the no. of units to be manufactured/bought.

Total cost in manufacturing the picture tube = Fixed Cost + Variable Cost = 10,000 + (Q x

15) Total cost in purchasing the picture tube = Q x 2.8

At BEP, cost of buying and manufacturing will be the same;

F 10,000
i.e., BEP in units, Q = = = 7693 units
2.8−1.5
= s−v

If we substitute 7,000 units as the requirement of the components, then total cost of buying the
unit will be Rs. 19,600 which is lower than the manufacturing cost of Rs. 20,500. Hence, ifthe
demand is 6000 per year, it is economical to buy.

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 MODEL
QUESTIONS

1. Discuss the scope and objectives of Industrial Engineering.

2. Brief about the evolution/historical development of Industrial Engineering.
3. Describe the tools and techniques/functions of Industrial Engineering.
4. “Industrial Engineering helps in increasing the productivity of an organization”. Explain.
5. List and explain a few significant application fields of Industrial Engineering.
6. What are the major roles of an industrial engineer?
7. What are the types of production system? explain
8. Distinguish between job shop production system and mass production system
9. Describe the procedure followed while designing a product.
10. What are the human factors to be considered while designing a product?
11. What are the principles of good product design?
12. Define cost. List the various costs associated with production. Why is it necessary
to analyze the production cost?
13. Define BEP and explain its significance. Also brief about the assumptions made in
arriving at BEP.
14. Explain briefly about the C-V-P analysis and its significance.
15. The fixed cost of producing a product in a company is Rs. 8,00,000. Variable cost per unit
of the product is Rs. 30. Each unit of the product is going to be sold at a price of Rs. 180.
Determine the breakeven point of this product.
16. With the help of a neat diagram, illustrate the Product Life Cycle concept. Comment on
each phases of the PLC.
17. Explain the use of prototype in product development.
18. Describe functional design and design for production.
19. What is the importance of ‘standardization’ and ‘simplification’ in product design and
development?

20. What are the effects of diversification in a manufacturing industry?

21. Brief about the principles of concurrent engineering.
22. Explain the need for product alternatives and how is it achieved.
23. Explain the factors that influence make or buy decision.
24. Explain how diversification assists in the growth of an industrial organization.
25. List the four stages of a product life cycle. Explain it.
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