Autonomous University of the State of Hidalgo

Institute of Basic Sciences and Engineering

Industrial Engineering

Investment Projects

Problems Chapter 2

Students:
Baños López Esperanza
García López Lizeth Victoria
Mejía García Rebeca
Hector Ortega Medina

Pachuca, Hidalgo on August 19, 2011

 2.1.-A company that processes industrially produces a chemical compound that
sold to manufacturers for use in the production of certain items
plastic. The plant that produces the compound employs 300 people,
approximately. Mention six elements of different cost that is
they will classify as fixed and another six elements that would be classified as variable.

Solution:

Fixed costs:

The salary of the administrative staff.

2. Services (such as water, electricity, telephone, etc.).
3. Stationery items.
4. Insurance and taxes on real estate.
5. Direct labor.
6. Taxes on money lending.

Variable costs:

Extra time.
2. External labor in case of excess demand.
3. Costs for corrective maintenance.
Raw material.
5. Transport of the compound.
6. Cost of sterilizing you for the team, in the production of
chemical element.

2.2.- In relation to the response given to problem 2.1:

a) Create a table that shows the cost elements you defined and
I classify as fixed and variable. Indicate which of them are also
recurring, direct or indirect.

Solution:

COSTS FIXED DIRECT RECURRING VARIABLES INDIRECTS

The salary of the
administrative.
Services (such as water, electricity,
phone, etc.).
Stationery items.
Insurance and taxes on
real estate.
Direct labor.
Loan Taxes
of money.
Extra time.
External labor in
in case of excess of
demand.
Maintenance costs
corrective.
Raw material.
Transport of the compound.
Cost of sterilizing you for the
material

b) Identify an additional cost element for each of the characteristics

of cost: recurring, non-recurring, direct or indirect.

Solution:

Recurrent:

Payment for security personnel.

Non-recurrent:

Investment in production equipment.

Direct

Cost of packaging for the storage of the item.

Indirect

Cost per computer equipment.

2.3.- Classify each of the following cost concepts as preferred.

fixed or variable.

Solution:

Fixed preferred Preferred variable

Depreciation Raw material
Facilities Direct labor
Property Taxes Supply
Salaries of the administrative staff Commissions on sales
Payroll taxes
Insurance (buildings and equipment)
Office workers' salaries
 Rent
Interest on money loans

2.4.-Describe in your own words the concept of life cycle cost.

Why is there greater potential for achieving savings in the life cycle cost in
the acquisition phase of this?

Solution:

The lifecycle cost refers to the total cost incurred.

during their entire useful life, regardless of the type they are (recurring or not)
recurrent.

The potential for achieving life cycle cost savings is greater in the
acquisition phase because this is the phase where it is established how it will be carried out
cable, with what material, with what type of production, its design, in addition to
perform the relevant tests on the prototype to prevent future failures.
which is greater the savings field from the planning and design of the product.

2.5.-Explain why perfect competition is often a difficult potential.

to reach. Mention several business situations that approach the
perfect competition.

Solution:

Perfect competition is not easy to achieve as it is limited by the

actions of both buyers and sellers, because many
Sometimes they are not the right ones for this competition, as in their eagerness to be the
The best do not care about achieving perfect competition.

Situations close to perfect competition:

. A large number of vendors supply any specific product and

there is no restriction on the number of additional suppliers that may enter
market.
. Freedom of choice, both for the seller and for the buyer.
. It must be assumed that there will be competitors producing goods or services.
of quality.

A company produces circuit boards that are used for upgrades.

outdated computing equipment. The fixed cost is $42,000 per month, and the variable cost is
$53 per circuit board. The selling price per unit is esp=$150–0.02D.
The maximum production of the plant is 4,000 units per month.

a) Determine the optimal demand for this product.

Solution:

P= $150 – 0.02D

CF$42,000 /month.

cv$53 per unit.

b) What is the maximum monthly utility?

Solution:

( )

c) At what volumes is equilibrium reached?

Solution:

[ ]

[ ]

d) What is the range of demand for the company to make profits?

Solution:

The range of profitable demand is 481 to 4,369 circuit boards per month.
2.7 Suppose it is known that P=1000–D/5 where P= price in dollars, and D=
annual demand. The total cost per year is approximately described with the
expression $1,000 + 2D^2(2.3)

a) Calculate the value D that maximizes utility.

Solution:

P= 1000-D/5
Cost
Total 1000 + 2D^2
a= 1000
b= 1/5
CF 1000
2

4784.19
b) Prove that in the previous section it is maximum and not minimum.

Solution:

[√ ]

D'=17
[√ ]

D´´=463

Max utility = (|-78-(240)-0.1|(240)2-(800+30(240))=4960

A company established that for one of its products the relationship

approximately between its selling price and the quantity sold per month is
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 dollars per month and the variable cost is 30.
dollars per month for each unit produced. What is the number of units D*
What should be produced and sold per month to maximize net profit? Which?
it is the maximum utility per month related to the product likewise determine
D'1 and D'2.

Solution:

D= 780 -10 P p= D-780/-10

a= -78
b= -0.1
Cf= 800 X
Cv= 30 X
D*= ?

| |
| |

[√ ]

[√ ]

(| |) |

A company estimates that the approximate relationship between the unit price and the
The monthly demand for a potential new product is P=100.00-0.10D.
the company can produce the item if it increases its fixed costs by 17,500.
months and the estimated variable cost is 40.00 per unit. What is the demand?
optima D*? Based on that demand. Should the company manufacture the
new product? Why?

Solution:

a B
P= 100 -0.1 D
17.5
Cv= 40
 a) Obtain the complete solution through differential calculus, start
with the formula for profit or loss per month

A large woodworking company is negotiating a contract.

abroad. The Fixed cost that can be assigned to the production of such
the material is 900,000 per month. The variable cost for every 1000 board feet is
131.5, the price to be charged will be determined by the relation p=600-0.05D
per 1000 feet of board.

Cf= 900000
Cv= 131.5
P= 600 0.05 D

a) for this situation, determine the optimal sales volume of this product and
calculate the profit (or loss) with the optimal volume.

Solution:

| |

b) What is the range of demand that generates profits during a month?

Solution:

[ ]

[ ]

D1`=2698 units per month

[ ]

6672 units/month
Conclusion: the range of profitable demand is from 2698 to 6672 units.
months.

A company manufactures and sells a consumer product, and has been

sufficiently able to control the volume of the product with the variation of
selling price. The company wants to maximize its net income, it has concluded that
the relationship between price and demand, per month, is approximated by D=500 - 5p, where
p is the price per unit, in dollars. The fixed cost is 1,000 per month, and the cost
variable is $20 per unit. Answer the following questions, both in form
analytics as graphics:

Cf= 1000
D=500-
5P
20
a= 100
P= D-500/5
b= 1/5

a) What is the optimal number of units that should be produced and sold by
month?
solution

( )

Conclusion: Therefore D* is a maximum.

b) What is the maximum profit per month?

Solution:
 ( | ( )

c) What are the equilibrium quantities of sales (range of volume of the

demand that generates profits?
Solution:

[ ]

[ ]

The profitable range is between 13 to 387 units per month.

2.12 A company determined the price and demand monthly for one
Their products are related by the equation. D=SQRT(400-P). Where P
the unit price in dollars and D is the monthly demand. The Fixed Costs
Associates are 1,125 per month and the variables are 100 units.

a= 400
400-D^2 1 20
Cf= 1125 D= 150
Cv= 100

a) How many units must be produced and sold each month to maximize the
utility?

Solution:

b) How to know that the answers to the previous item maximize utility?

Solution:

( )
c) Which of the following values of D represents the break-even point? Why?

Solution:

-10 unidades - 15 unidades- 25 unidades

2.13 A place to deposit the solid waste of a city must be located in

the site A or at site B after being selected, some solid waste is
they will be transported to a power plant that will use them as fuel.
The data for the transportation of these waste from each of the sites
towards the power plant are presented

Solution:

Site A Site b
Distance average of 4 3 Miles
transport
Annual rent fee for a site for 5000 100000
DS
Cost of transportation 1.5 1.5 yd^3-mile

a) if the power plant is going to pay 8.00 per cubic yard of solid waste
selected that are taken to them Where should the deposit be located?
trash? Adopt the city's perspective and assume that it would only be transported
For one year, 200,000 cubic yards of waste to the plant. It must be chosen
a site.

b) In relation to the power plant, the cost Y in dollars per hour

to produce electricity is Y=12+0.3x+0.27x^2 where x is in Megawatts, the
Income in dollars per hour from the sale of energy is 15x - 0.2x^2 find
the value of x that yields the maximum profit.

A plant has the capacity to manufacture 4,100 hydraulic pumps.

per month. The fixed cost is $504,000 per month. The variable cost is $166 per
pump, and the selling price is $328 per pump. (Assume that sales are
equal to the volume of production). What is the break-even point in the number of
the bombs per month? What will be the percentage reduction that will occur in the
break-even point, if fixed costs are reduced by 18% and variable costs
unit prices at 6%?
Solution:
CF=$504,000
CV$166
$328

There would be a 27.55% reduction in the break-even point.

2.15. Suppose that Corporation ABC has a production capacity (and

sales) of $1,000,000 per month. Their fixed costs (in a considerably range of the
The volume is $350,000 per month, and the variable costs are $0.50 per dollar.
of sales.
a) What is the annual break-even point of the volume (D')? Build (graph) the
equilibrium graph.
b) What effect would the decrease in variable cost per unit have on D/
25% if consequently fixed costs increase by 10%?
c) What would be the effect on D' if fixed costs decreased by 10% AND the cost
Will the variable per unit increase by the same percentage?
Solution:

CF$350,000*12=4,200,000

CV$0.50

P=$1 a)

The break-even point would have a reduction of 12%

c) The break-even point would remain the same.

A company produces and sells a product for the consumer and is capable
to control its demand by varying the selling price. The approximate relationship
between the price and the demand is:

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

a) What is the number of units that must be produced and sold each month?
in order to maximize utility?
b) Prove that the answer to the previous item maximizes utility.

CF$1,000

CV$40

A local defense contractor is thinking of producing fireworks,

as a way to reduce its dependence on the military. The variable cost per
The unit cost is $40D. The fixed cost that can be assigned to the production of fireworks.
artificial is despicable. The price that will be charged per unit will be
determined by the equation p = $180–5D, where D represents the demand,
units sold per week.
Solution:
a) What is the optimal number of units that the contractor should produce with the
objective of maximizing utility per week?
b) What is the usefulness if the optimal number of units is produced?

CV=$40D
P = $180 - 5D

2.18 An operating plant has fixed costs of $2,000,000 per year, and its
The production capacity is 100,000 electrical devices per year. The cost
The variable cost is $40 per unit, and sells the product for $90 per unit.
Solution:

CF=2000000
40
P=90

a) Build the economic equilibrium graph.

b) If the plant operates at 90% of its capacity, compare the annual profit with the
utility generated when operating at 100%. Assume that the first 90% of
produced capacity is sold at $90 per unit; and the remaining 10% of the
production, at $70 per unit. (2.3)

The fixed cost per steam line per meter of piping is $450X + $50
per year. The cost for heat loss in the pipe is $4.8/ X1/2per year.
Here, X represents the thickness of the insulation, in meters, and X is a variable.
design continues.
Solution:

a) What is the optimal thickness of insulation?

b) How do we know if the answer to the previous item minimizes the total cost?
year?
e) What is the basic exchange analysis that is done in this problem?

Cf=450X+$50
Cv=$4.8/X1/2

2.20. A farmer estimates that if he harvests his soybean crop right now,
he will obtain 1,000 fanegas, which he can sell for $3.00 per fanega. However,
it is estimated that this crop will increase by 1,200 additional fanegas of soy for each
week that delays the harvest, although the price will decrease at a rate of 50
cents per bushel per week; furthermore, they are likely to spoil
approximately 200 fanegas per week for each week it takes to
harvest. When should you harvest your crop to obtain the highest yield?
in cash, and how much would she receive for her harvest at that moment?
Solution:

Harvest the crop in 2.5 weeks to receive a maximum income of $6,125

A recent graduate in engineering was given the task of

determine the best production rate for a new type of molding process
in a foundry. After experimenting with many combinations of rates
of production per hour and total production cost per hour, summarized the data
what he obtained in table 1. (See table P2.21). Then, he talked with the
company marketing specialist, who gave him price estimates of
sale by mold as a function of the quantity produced (see table II). In a
There are 8,760 hours in a year.
 Solution:

a) What production rate would you recommend to maximize profits?

totals by year?

100 molds
Unit cost = 1,000/100 = $10
Selling price = $20

(100(molds)*10($each mold)*8760(hours))= $8,760,000

=(100(molds)*20($each mold)*8760(hours))= $17,520,000
$8,760,000

200 molds
Unit cost = 2,600/200 = $13
$17

(200(molds)*13($each mold)*8760(hours))= $22,776,000

$29,784,000
$7,008,000

300 molds
Unit cost = 3,200/300 = $10.66
Selling price = $16

$28,014,480
= (300(molds)*16($each mold)*8760(hours))= $42,048,000
$14,033,520
400 molds
Unit cost = 3,900/400 = $9.75
$15

(400(molds)*9.75 ($per mold)*8760(hours))= $34,164,000

=(400(molds)*15($each mold)*8760(hours))= $52,560,000
$18,396,000
 500 molds
Unit cost = 3,900/400 = $9.4
Selling price = $14.5

= (500(molds)*9.4 ($each mold)*8760(hours))= $41,172,000

$63,510,000
$22,338,000

THE NUMBER OF MOULDS THAT GENERATES THE MOST PROFIT IS =

500 molds per hour

A) How sensitive is the rate from the previous item to changes in cost?
total production hour?

It is proportional, that is, the costs per hour increase as it increases.

the production per hour, however this cost difference goes
getting smaller as the number of molds increases, because
both profits increase faster than costs.

The cost of operating a large ship (Co) varies with the square of its
speed (v); specifically, Co = knv2, where n is the length of the journey in miles, and
k is a constant of proportionality. It is known that at 12 miles/hour the cost
The average operating cost is $100 per mile. The ship owner wishes to
minimize the operating cost, but it must balance it against the cost of the load
perishable products (Cc) that the client has set at $1,500 per hour.
At what speed should the trip be planned to minimize
the total cost (Cr), which is the sum of the operating cost of the ship plus the cost
of the perishable goods?

The total cost equation =

CT= Co + Cc= Knv3/2(1,500.00) (n/v)
Co/n=kv3/2

100/mile = k (12 miles/hour)3/2

K = 100/mile/(12 miles/hour)3/2
K=100/mile/41.56 (miles3/2/hours3/2=2.40 hours3/2miles5/2
CT=2.40nv3/2+ 1500(n/v)

DERIVING!!!!
duct/dv = 3/2 * 2.40nv1/2 -1500/v2=0

=3.6v5/2-1500 = 0
V5/2416.6666
V=(416.666)2/511.1666 miles per hour

By working with speed limits in miles per hour, we can determine what is the
speed at which the ship must travel, considering cost limits.
Therefore, the ship must travel at a speed of 11.166 miles per hour.

2.23 Suppose you are going to take a long trip to your grandmother's house, who lives
in Seattle, 3,000 miles away. He has decided to make the trip in his Ford car.
old, which yields approximately 18 miles per gallon at a speed of 70
miles per hour. Since grandma is an excellent cook and you can
stay and eat at home as much as you want (free), wishes to move to
Seattle in the most economical way possible. However, you are concerned about the
gasoline consumption rate at high speeds. To balance this cost
Hi, you have the cost of food, snacks, and lodging.
What is the optimal average speed I should travel to minimize the
total cost of the trip, CT(2.4)
CT = CG + CFSS, where
CG = n X Pg x f (CG = cost of gasoline)
CFSS = n x Pfss x v-1(Cfss = cost of gas, snacks, and lodging)
trip length (miles)
gasoline price, $1.26/gallon
Pfss: money spent per hour, $2/hour, (motel, breakfast, snacks, etc.
$48 for 24 hours,
average speed of the car (miles/hour)
f = kv, where k is a constant of proportionality and f is the consumption rate of
gasoline in gallons per mile.

Solver
MinimizeCT= 43582.63
Cg= 43448.4
 Cfss134.2282
n= 3000
pg= 1.26
pfss= 2
44.7 Optimal speed
11.49429

2.24 With the information from the table presented below, solve the
sections a) and b).
Solution:
a) Compare the probable cost of the part in machine A and machine B, if
Assume that each one will be manufactured with the same specification. What machine
produce the lowest cost of the part? Assume that the interest rate is
despicable.
b) If labor costs can be reduced by half by using employees to
part-time, what machine is recommended?

2.25 The following results were obtained after analyzing the effectiveness
operation of a machine to produce at two different speeds:

A set of unsharpened tools costs $1,000, and can be used 20 times.

the cost of each sharpening is $25. The time required to change and
Reinstalling the tools takes 1.5 hours, and the changes are made by a
specialist who is paid $15/hour, which includes the time that the machine
It stops so that its tools can be sharpened. The general variable costs of
the machine is charged at a rate of $25/hour, which includes the time for changing
tools. A fixed size production run will be made
(regardless of the speed of the machine).
Solution:

a) At what speed should the machine operate to minimize the total cost?
piece? State the assumptions you make.
b) What is the basic exchange analysis in this problem?

Exit Type. between sharpening

Speed (Pieces/Hour) from the race track
 tools
(hrs)
A 400 15 30
B 540 10

They can be used

Cost of the tool times Cost of sharpening
1000 20 25

Reinsta herra (hrs) Payment ($/hr) Costs

variable($/hr)
1.5 15 25
0.106018519
Total cost of the
piece (V. A)
a) Total cost of 0.088416848 Better speed: B
piece (V. B)

b) The work and operating expenses are negotiated for greater production.

In the tool game for a certain volume, steel can be used for
Tools or carbon steel. It is necessary to sharpen the tools properly.
Periodic. The relevant information for each material is shown in the table
P2.26.
Steel to Steel for
carbon tools
Production at optimal speed 100 130 pieces/hour
pieces/hour
Time between sharp of 3 hours 6 hours
tool.
Time required to change 1 hour 1 hour
tools
Cost of tool without blade $400 $1200
Number of times they can 5
sharpening the tools

The cost of the lathe operator is $14.00 per hour, which includes the time
necessary to change the tools, during which the operator remains
no activity. The tool changer costs $20.00 per hour, only for the
time it takes to change them. The general variable costs for the lathe are
at $28.00 per hour, which includes the time to change tools. What
What type of steel should be used to minimize the joint cost per piece?

Speed Tpo between sharpened Tpo for

change
Steel Optima of the tools Tool. (hrs)
(Pieces/Hr) (hrs)
Carbon 100 3 1
For 130 6 1
tools

Cost of the Se they can

tool to use
without an edge times
400 10
1200 5

Cost of Change Tool

Operator ($/hr) ($/hr)
14 28

Carbon steel 2.35

Steel for
tools 2.018461538 Steel is better for tools

An automatic machine can operate at three speeds, with the

following results:

Speed Production time between

(Pieces per hour) tool affiliate
(hours)
A 400 15
B 480 12
C 540 10

A dull toolkit costs $500 and can affiliate 20 times. The cost
each sharpening costs $25. The time required to change and reinstall
the tools take 1.5 hours, and the changes are made by a specialist to whom
it adheres to $8.00 per hour. The general variable costs of the machine are
assigned at a rate of $3.75 per hour, which includes the changeover time of the
tools. At what speed should the machine operate in order to
minimize the total cost per piece? The basic difference in this problem arises
between the production rate and the use of the tool.

Production Time during sharpening Tpo for

change
Speed (Pieces/Hr) from the tools Herram. (hrs)
(hrs)
A 400 15 1.5
B 480 12 1.5
C 540 10 1.5

Cost of You can cost

tool to use for
without edge (times) to sharpen
500 20 25
500 20 25
500 20 25

Speed
A 0.016527778
B 0.01547619
C 0.015359477

The best option is speed C

A company analyzes the situation of manufacturing versus buying, for a

component used in various products, and the engineering department has
obtained the following data:

Option A: Buy 10,000 items per year at a fixed price of $8.50 each
each one. The cost of ordering is negligible, according to the procedures
of cost accounting.

Option B: Manufacture 10,000 items per year using the capacity

available at the factory. The estimated costs are for direct material = $5.00
For each article, the general manufacturing cost is allocated at 200% of labor.
direct ($3.00 per item).
a) Based on the previous data, (the item should be purchased or manufactured).

Solution:

Buying the product at $8.50 takes option A, there are no costs, nor
too many expenses.

b) if it is possible to track the overall manufacturing cost directly

for this article (avoiding the general rate of 200%) and it will end up being $2.15 per
Article, What selection would be recommended? (with an accounting procedure)
based on activities, it is possible to track the overall cost; it is incremental to the
manufacturing of the part; and consists of cost elements such as training
of personnel, improvement of materials quality control supervision and installations. The
general cost that can be tracked associated with the purchase of this item
(seller certification, parameters, etc.) is $0.50 per item.

Solution:

10,000 * 2.15 = 21,500

10,000 * 0.5 = 5000

26,500

It is advantageous to manufacture as production costs decrease.

In the design of a car radiator, an engineer can choose between

use a mold made of a brass and copper alloy, or another one made of plastic. Both
materials provide the same service. However, the mold of the brass alloy
and copper weighs 25 pounds, compared to the 20 pounds that plastic weighs.
each additional pound of copper weight is assigned a penalty of $6 for the
increase in gasoline consumption during the vehicle's lifecycle. The mold
brass and copper alloy costs $3.35 per pound while the plastic
It costs $7.40 per pound. The machining cost per mold is $6.00 for the
of metal alloy. What material should the engineer select and what is the
difference of a unit cost?

Solution:

Tin and copper. Plastic.

25 pounds * 3.35 per mold = 83.75 20 pounds * 7.4 mold =

148

+ (5 * 6) = 30 extra pesos 83.75 + 30 = 113.75 + 6 of machining = 119.75

148–119.75 = 28.25 the brass one is better.

2.30 For the production of the R-193 part, two operations are considered.
The capital investment associated with each of them is identical. Each part
finished increases its value by $0.40.

The operation 1. Produces 2,000 parts per hour, after every hour, the
the operator must adjust the machine tools, a task that takes 20
minutes. The machine operator for operation 1 receives $20 per hour (the
which includes incentives).

Operation 2. It produces 1,750 parts per hour, but the operator adjusts it.
only once every 2 hours. This adjustment takes 30 minutes. To the operator of the
Machine for operation 2 is paid $11.0 per hour (this includes incentives).

Assume a workday of 8 hours, in addition to the fact that all parts that are
products can be sold. (2.5)

a) Should operation 1 or operation 2 be recommended?

b) What is the basic swap analysis in this problem?

Solution:

7 * 20 = 140 min = 2 hrs 20 min

8 hrs - 2.2 = 5.8 * 2000 = 11600 * 0.40 = 4640

Operation 2

Every 2 hours, 20 minutes are lost, so in 8 hours, 90 minutes or 1 hour 30 are lost.
min.

In 6 hours and 30 minutes, 11375 pieces are produced * 0.4 = 4550

Then you must select operation 1 that maximizes utility.

b) The increase in production for operation 1 is negotiated with the

increase in tool time (less time).

2.31 Solve problem 2.12 again for the case of the capacity of each
machine is reduced by 25% due to machinery failures, the deficit of
materials and operator errors. In this situation, during the next three
months must manufacture 30,000 units of approved products (without
defects). Assume one change per day and five working days per week.

a) Can the order be fulfilled on time?

b) If only one machine (A or B) can be used in the previous section, which would it be?
better option?

Solution:

a) Any of the machines meets the required demand and time.

Machine A has a lower unit cost and is less defective.

2.32 Two alternative designs for a lock latch are being studied.
Latches are sold at $0.70 each. Any design will work just as well.
It will involve the same cost of materials and manufacturing except for operations.
of turning and drilling.

Design A requires 16 hours of turning time and 4.5 hours of time for
drilling per 1,000 units.

Design B requires 7 hours of turning and 12 hours of drilling for every 1,000.
units.

The variable operating cost of the lathe, which includes labor, is $18.60.
for now the variable operating cost of the drill, including labor, is
$16.90 per hour. Lastly, there is a hidden cost of $5,000 for the
design A and $9,000 for B, due to tools. (2.5)

a) What design should be adopted if 125,000 units are sold each year?

b) What is the annual savings over the other design?

Solution:

a) Select design b as the cost is lower.

A) B)

16 * 125 * 18.6 = 37200 7 * 125 * 18.6 = 16275

4.5 * 125 * 16.9 = 9506.25 12 * 125 * 16.9 = 25350

Expense 5000 Expense 9000

Total of $51,706.25 Total of $ 50,625

Comparing results by dividing the totals by 125,000 the savings is
0.04065 per unit multiplied by 125,000 = $5,081.25

In some countries, drivers are required to drive with the lights on.
turned on at all times. General Motors is starting to equip its
vehicles with daytime running lights. Most people agree
driving with the lights on at night is cost-effective,
regarding the additional fuel consumption and other considerations of
security. According to the following data and any assumption that
you create necessary, analyze the cost of driving with the lights on
during the day, answering the following questions (cost efficiency
it means that the benefits outweigh the costs

-75% of management activities take place during the day.

-2% of fuel consumption is due to accessories (radio, lights, etc.)

Fuel cost = $1.15 per gallon.

The average distance traveled per year is 15,000 miles.

Average cost per accident = $2,500.

Purchase price for lights = $25 per set. (2 headlights).

Average operating time of the car per year = 350 hours.

Average lifespan of a lighthouse = 200 hours of operation.

Average fuel consumption = 1 gallon per 30 miles.

A) What are the additional costs associated with driving with headlights on?
in the day?

Solution:

Purchase of headlights, increase in accessory costs, increase in fuel.

b) What are the benefits of driving with lights on during the day?

Solution: Fewer accidents, less spending on separating your cars.

c) What additional assumptions (if any) do you need to conduct this analysis?

Accident index in the city, cause of the accidents, state of the

roads.
d) Is it cost-effective to drive with the lights on during the day?
Make sure to support your recommendation with any necessary calculations.

Solution:

The costs are not effective, it would increase spending by $50 on headlights.

500 gallons * 1.15 = 575 + 2% = 586 are additional costs.

2.34 Suppose you are a mechanical engineer facing the problem of

design a rigid coupling that will be used to join two instrument shafts
that fit the order of a special client. Only 40 will be produced.
couplings, and there is no reason for the order to be repeated in the near future. The
Coupling is very simple and can be made from a steel bar.
from the inventory. The production engineering department indicates that it is available
of two machining methods. The following table summarizes the data for the
production of the metal lathe and the production alternatives for screws for the
rigid coupling.

Comparative production costs.

Return automatic machine of

screws
production rate 4 pcs. / 18 pcs. / hour
hour
cost of the machine 5/hour 25/hour
startup cost (labor of ///// 15
work)
operating cost (labor of 15/hour 12/hour
work)
cost of material the same the same
supervision cost the same the same

As the automatic screw machine is a more complex and versatile device.

That the column lathe, it is not surprising that its cost per hour is higher. It
requires a skilled machine operator to operate the lathe, while one with
less preparation would attend to the screw machine. The charge for starting the
screw machine involves paying for the services of a specialized person who
makes the initial adjustment of its operation. Then the operator leaves it stocked up with
raw material. The costs of raw material and supervision would be independent.
of the production method. The actual cutting tools for a machine
automatic screw machines are likely to be more expensive than those of the lathe, since
the machine operates at a higher cutting speed. However, for the operation
so brief (40 units), the use of the tool would be negligible, and it can
ignore its cost. (2.5)

a) calculate the cost of producing the coupling with each method.

b) How does the cost per part vary with the number of items produced?

Solution:

for lathe-

10 hours of work + 50 machine cost + 150 worker cost = 200 cost

total.

Automatic machine.

2.2 hours of work + 55.55 for machine cost + 15 for machine startup +
26.4

Better the automatic machine.

the larger the pieces, the higher the production cost and the greater the labor.

A method to develop a mine that contains 100,000 tons of

mineral, it would approximately lead to a recovery of 62% of the deposit.
available mineral and would cost $23 per ton of extracted material. A second
the recovery development method would only recover 50% of the mineral deposit, but
it would only cost $15 per ton of material extracted. The next process of the
mineral removal recovers 300 pounds of metal for every ton that is
it processes and costs $40 per ton of processed ore. The metal that is
Recoverable can be sold for $0.80 per pound. What method for developing the mine?
Is it advisable if the goal is to maximize the total utility of the mine?

Solution:

Method 1: recovers 62,000 tons. That is 62,000,000 kg. In pounds, it is 137,777,777.8.

0.8 = 10,974,000

Method 2: retrieves 50,000 tons. That's 50,000,000 kg. In pounds, that's 111,111,111.1 *
0.8 = 88,888,888.8

Method 3: the final is 888,888,888.9

The best method is 1.

Seawater contains 0.9 ounces of gold per ton. Method A costs
$220 per ton of water that is processed and recovers 85% of the metal. The method
B costs $160 per ton of processed water and would recover 65% of the metal.
Both methods require the same investment and are capable of
produce the same amount of gold per day. If the gold that is extracted can be sold
$350 per ounce. What extraction method should be used? Assume that the
The water supply is unlimited. Solve the problem based on utility.
per ounce of gold extracted.

Solution:

Method A retrieves 0.765 ounces. * 350 they pay for it = 267.75 - 220
proceso $ 47.75

Method B recovers 0.585 of an ounce. * 350 that they pay for it = 204.75–160 of
process $44.75

Better method A

2.37 Which of the following statements are true and which are false?
(all selections).

Solution:

a) working capital is a variable cost. False

the greatest potential for cost savings occurs in the operational phase of
life cycle. False

c) if the capacity of an operation changes significantly (for example, a

In a manufacturing plant, fixed costs also change. True

d) the cost of the initial investment of a project is a non-recurring cost.

True

e) the variable costs per unit produced is a recurring cost. True

f) A non-cash cost is a cash flow. False

Goods and services have utility since they have the power to satisfy
wishes and needs of human beings. True

The demand for necessities is more inelastic than the demand for luxuries.
True
i) Indirect costs can usually be allocated to a specific output or
work activity. False

j) The current economic studies are often conducted when the value of
Money over time is not a significant factor in the situation. True

k) normally, overhead costs include costs that are not direct.

True

the optimal volume (demand) occurs when total costs are equal to the
total [Link]

Standard costs per unit are set in advance of production.

real or the service provided. True

a sunk cost typically affects cash flows in

prospective associated with your situation. False

The life cycle needs to be defined within the context of the specific situation.
True

The largest allocation of costs occurs in the acquisition phase of the cycle.
[Link]

2.38 A component of the life cycle of a system is the cost of systems

faults. The costs of faults tend to decrease if a system is better designed.
reliable. A simplified expression for the life cycle cost of the system, C
it is written as a function of the system failure rate:

Ci = cost of investment ($ per hour per failure).

Cr = cost of repairing the system.

system failure rate (failures / operating hour).

t = operating hours.

a) suppose that C and Cr and t are constants. Obtain an expression for let's say
that I optimized to C.

b) Does the equation from the previous item correspond to a maximum or minimum value of C?
demonstrate the need to support the response.

c) What type of exchange takes place in this problem?

Solution:
a) delta * = (Ci / Cr t) ^1/2

b)d^2*C / d δ ^2 = 2Ci / δ ^3 > 0 for δ > 0 cost.

c) investment cost against total repair costs.

A bicycle parts manufacturer produces hubs for bicycle wheels.

To manufacture them, two processes are possible whose parameters are shown.
continuation.

Process 1 Process 2
production rate 35 parts / 15 parts /
time hour
time diary 7 hours / day
from 4 hours / day
production
Percentage of parts 20% 9%
that are rejected with
based on the inspection
visual.

Assume that the daily demand for cubes allows them to be sold out.
they have defects. Additionally, the tested or rejected cubes cannot be sold.
Determine which process maximizes utility if each part is made from
material that costs $4 and can be sold for $30. Both processes are
completely automated and the general variable cost is assigned at a rate of $40 per
hour. (2.5)

Solution:

Process 1.

* * (1 - .2)–( * * ) –( * 2520

Process 2.

* * (1 - .2)–( * * ) –( * ) = 2160.5

Best option process 1.

2.40 Puzzle. The student selection of the American society of

Mechanical engineers are planning a 6-day trip to the natural conference.
in Albany, NY. To get around, the group rents a car. From State Tech
Motor Pool or from a local rental company. The Motor Pool charges $0.26 per mile, it does not have
daily rate and pay for gasoline. The car rental charges $25 per day and $0.14
per mile, but the group must take care of the gas. Gas for cars
It yields 20 miles per gallon and its price is estimated at $1.20 per gallon.

a) At what mileage point is the cost of both options equal?

b) the car rental company has offered a special discount for students and them
Will give 100 free miles per day. What is the new break-even point?

c) Motor Pool reduces its all-inclusive rate to $0.23 per mile and the renter
The car's rate rises to $425 per day and $0.21 per mile. In this case, the lessor
He wants to make the business appealing to students in the way that he offers it.
1,000 miles for the whole 6-day trip. Claims that if they drive more than 882 miles,
the students will move forward with one of the rented cars. If the students
They plan to drive 1,600 miles (in total). Who should they rent the vehicle from? The
Is the landlord's statement completely correct?

Solution:

At 2,500 miles, the amount of motor pool and the lessor is equal.

2,500 * 0.26 = 650.

350 + car rental expenses 25 * 6 = 150 + 150 for gasoline =

650.