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HOMEWORK#1
Question1:
.a) List the seven fundamental principles of engineering economy
1-Develop the alternatives
2- Focus on the differences
3-Use a consistent viewpoint
4-Use a common unit of measure
5-Consider all relevant criteria
6-Make uncertainty explicit
7-Revisit your decisions
b) Because it ensures that the best possible Solution is Selected.
Question2:
a)
1-Problem Definition: Identify the decision to be made
2-Development of Alternatives: Identify possible solutions or
.actions
3-Development of Prospective Outcomes: Estimate the
.potential impact of each alternative
4-Selection of a Decision Criterion: Determine criteria for
.evaluating alternatives
5-Analysis and Comparison of Alternatives: Assess and
.compare options
6-Selection of the Preferred: Choose the best option
7-Performance Monitoring and Post-Evaluation: Implement the
decision and ensure its effectiveness
b)
1-Problem Definition: The company needs to determine whether upgrading its
production equipment will improve efficiency and profitability compared to
maintaining its current setup
2-Development of Alternatives:
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Alternative 1: Upgrade to new, more efficient production equipment
Alternative 2: Continue using the current equipment with regular
maintenance
3-Development of Prospective Outcomes
-Initial investment cost
-Expected increase in productivity
4-Selection of a Decision
5-Analysis and Comparison of Alternatives
6-Selection of the Preferred Alternative: Based on the analysis, the
company chooses the option that maximizes profitability while minimizing
risks and costs. If upgrading equipment shows a strong financial and
operational benefit, it would be the preferred choice.
7-Performance Monitoring and Post-Evaluation: After implementation,
the company should track key performance indicators
Question3:
a)
1-Fixed Cost: A cost that does not change with the level of production or sales
Example: Rent for a factory remains the same regardless of production
volume
2-Variable Cost: A cost that changes in proportion to production output
Example: Raw material costs increase as more units are produced
3-Incremental Cost: The additional cost incurred when producing one more
unit or expanding operations
Example: The cost of adding a second production line, including labor and
utilities
4-Direct Cost: A cost that can be directly traced to a specific product, project,
or department
Example: Wages paid to workers assembling a specific product
5-Indirect Cost: A cost that is not directly traceable to a single product or
project but supports overall operation
Example: Factory electricity bills that support multiple production lines
6-Opportunity Cost: The potential benefit lost when choosing one alternative
over another
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Example: A company invests in new machinery instead of expanding its
marketing efforts, losing potential sales growth
b) Consider a company that produces electric scooters. Identify one cost from
the production process that fits each of the categories above
Fixed Cost: Monthly rent for the scooter assembly plant
Variable Cost: Cost of lithium-ion batteries for each scooter
Incremental Cost: Additional labor cost for producing 100 more scooters
Direct Cost: Cost of scooter handlebars and wheels
Indirect Cost: Cost of factory maintenance and equipment depreciation
Opportunity Cost: Potential revenue lost by producing scooters instead of
electric bicycles
Question 4 :
a)
1-Problem Definition: Define objectives and constraint
2-Design Conceptualization: Develop alternative design solutions
3-Evaluation and Analysis: Assess costs and benefits of each design
4-Optimization and Decision Making: Select the most costeffective design
b)
Considering cost in product design is crucial for engineers because it ensures
the product is financially viable, competitive in the market, and sustainable in
the long term. It helps balance performance with affordability, meets budget
constraints, and optimizes resource allocation, ultimately leading to better
profitability and customer satisfaction.
Question 5 :
P = 100 – 0.04D
where P is the price per unit, and D is the demand in units
a) Find the optimal volume of sprinklers that maximizes profit
Revenue=TR(D) = PD = (100 – 0.04D) D =100D – 0.04D^2
C(D)= CF + CV* D =40,0000 +10,00D
TR(D)-C(D) = 100D – 0.04D^2 – 40,000 - 10,00D
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D - 0.04D^2-40,00090
dProfit/dD =90 – 0.08D
D=00.08 - 90
D= 90/0.08 =1125 Units
b) Determine the range of profitable demand values
D - 0.04D^2-90
40,000 = 0
D = (-b ± √b^2−4ac)/2a
Where;
a = -0.04
b = 90
c = -40,000
D = (-90 ± √90^2−4(-0.04) (-40,000)/2(-0.04
D1= (−90+41.23)/−0.08 =609.625 Units
D2= (−90-41.23)/−0.08 =1640.375 Units
:Question 6
P = 90 – 0.05D
where P is the price per unit, and D is the demand in units
a) Find the optimal volume of sprinklers that maximizes profit
Revenue=TR(D) = pD = (90– 0.05D) D =90D – 0.05D^2
C(D)= CF + Cv * D =60,0000 +18,00D
TR(D)-C(D) = 90D – 0.05D^2 – 60,000 - 18,00D
D - 0.05D^2-60,00072
dProfit/dD =72 – 0.1D
D=00.1 -72
D= 72/0.1 =720 Units
b) Determine the range of profitable demand values
D - 0.05D^2-60,000 = 072
D = (-b ± √b^2−4ac)/2a
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;Where
a = -0.05
b = 72
c = -60,000
D = (-72 ± √72^2−4(-0.05) (-60,000)/2(-0.05 (
which is negative
SO, No values of D yield positive profit; there is no profitable range
Question 7:
a)
-A basic tool in project management
-A framework for defining all project work elements and their relationships,
collecting and
-organizing information, developing relevant cost and revenue data, and
management activities
-Each level of a WBS divides the work elements into increasing detail
b)
For a bridge project a WBS can be instrumental in cost estimation by:
1-Breaking Down the Project:
a. It divides the overall bridge construction into manageable segments
(e.g., design, foundation
b. This detailed breakdown ensures that each component of the project is
separately estimated, reducing the risk of overlooking any element.
2-Identifying Cost Elements:
a. The WBS helps in categorizing all associated costs such as materials, labor
equipment, permits, and overhead.
b. By identifying these elements, it becomes easier to allocate resources and
assign
cost estimates to each segment of the project.
3-Improving Accuracy
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a. With each task and sub-task clearly defined, estimators can use historical
data and detailed analysis for each part, leading to a more accurate overall
cost estimate.
b. It facilitates early detection of potential cost overruns by enabling
continuous
tracking against the detailed breakdown.
Question 8:
Known cost in a previous year (2005) (Ck) = $150,000
Cost index in the known previous year (2005) (Ik) = 180
Cost index in the future year (2020) (In) = 250
Cn=Ck (In/Ik) =$150,000(250/180) =$208,333