7/25/2019 10 Mg2451 Eeca Qb

1/22

QUESTION BANK

DEPARTMENT OF MECHANICAL ENGINEERING

YEAR/SEM : IV/VIII

NAME OF THE SUBJECT :MG2451 ENGINEERING ECONOMICS AND COST ANALYSIS

NAME OF THE FACULTY :S.JOHNY JAMES DARSHAN.B.H

UNIT I

INTRODUCTION TO ECONOMICS

!"#FIRST HALF$ Introduction to Economics - Flow in an economy, Law of supply and

demand, Concept of Engineering Economics Engineering efficiency, Economic efficiency,

Scope of engineering economics.

!Y#SECOND HALF$ Element of costs, Marginal cost, Marginal e!enue, Sun" cost,

#pportunity cost, $rea"-e!en analysis- % ratio, Elementary economic &nalysis Material

selection for product 'esign selection for a product, (rocess planning.

PART % A

I)*. 'efine Economics.

I)+. rite any four goals of economy.

I). Eplain law of supply and demand.I)/. 0at is elasticity of demand1

I)2. 0at do you mean 3y e4uili3rium point1

I)5. Illustrate t0e effect of price on demand and supply wit0 t0e 0elp of a diagram.

I)6. rite a3out factors influencing demand.

I)7. rite a3out factors influencing supply.

I)8. 'efine Economic efficiency.

I)*9. 'efine ec0nical efficiency.

I)**. Eplain Engineering Economics.

I;*+. 'efine marginal cost.

I;*. 'efine marginal re!enue.

I;*/. 'efine sun" cost.

I;*2. 'efine opportunity cost.

7/25/2019 10 Mg2451 Eeca Qb

2/22

I;*5. 'efine 3rea" e!en analysis. rite down t0e formula for 3rea"e!en point.

I;*6. 'efine (

7/25/2019 10 Mg2451 Eeca Qb

3/22

Find t0e 3rea"-e!en Sales Buantity and t0e 3rea"-e!en Sales. If t0e actual production

4uantity is 59,999, find contri3ution@ and margin of safety 3y all met0ods.

I;*. Ma Co. 0as t0e following cost data for two successi!e periods.

;ear I Ds. ;ear II Ds.

Sales 29,999 *,+9,999

Fied Cost *9,999 +9,999

%aria3le Cost 9,999 59,999

'etermine t0e 3rea"-e!en point.

I;*/. From t0e following information relating to eet0a Ltd., you are re4uired to find out.

(% atio

$E((rofit

Margin of safety

i. otal Fied cost s. /299

ii. otal %aria3le cost s. 6299

iii. otal Sales s. *2999.

&lso calculate t0e !olume of sales to earn profit of s. 5,999.

I;*2. 0e process planning engineer of a firm listed t0e se4uence of operations as s0own in

ta3le gi!en 3elow to produce a component.

Se4uence

(rocess Se4uence

* urning Milling S0aping 'rilling

+ urning Milling 'rilling

&ll operations are performed wit0 C=C

Mac0ine

0e details of processing times of t0e component for !arious operations and t0eir

mac0ine 0our rates are summariGed in ta3le gi!en 3elow.

Mac0ine Hour ates Ds. and (rocessing imes Dminutes

#peration

Mac0ineHour ate

Ds.

(rocess Se4uence Dminutes* +

urning +99 2 2 -

Milling /99 7 */ -

S0aping 29 *9 - -

'rilling 99 -

C=C Mac0ine *999 - - 7

Find t0e most economical se4uence of operations to manufacture t0e component.

I;*5. rite notes on: $rea" e!en &nalysis, Engineering and economic efficiency, costs t0at

89 into t0e fiing of product cost.

7/25/2019 10 Mg2451 Eeca Qb

4/22

I;*6. Eplain t0e met0od of deri!ing selling price of a product.

I;*7. In t0e design of a >et engine part, t0e designer 0as a c0oice of specifying eit0er an

aluminium alloy casting or a steel casting. Eit0er material will pro!ide e4ual ser!ice,

3ut t0e aluminium casting will weig0 *.+ "g as compared wit0 *.2 "g for t0e steel

casting. 0e aluminium can 3e cast for s. 79.99 per "g. and t0e steel one for s.2.99 per "g. 0e cost of mac0ining per unit is s. *29.99 for aluminium and s.

*69.99 for steel. E!ery "ilogram of ecess weig0t is associated wit0 a penalty of s.

*,99 due to increased fuel consumption. 0ic0 material s0ould 3e specified and

w0at is t0e economic ad!antage of t0e selection per unit1

I;*8. Eplain t0e concept of multi item 3rea" e!en analysis wit0 an eample.

I;+9. 0at is cost !olume profit analysis1 State t0e assumptions and applications of 3rea"

e!en analysis.

I;+*. 'iscuss a3out simple economic analysis.

UNIT II

VALUE ENGINEERING

!"#FIRST HALF$ Ma"e or 3uy decision, %alue engineering Function, aims, %alue

engineeringprocedure. Interest formulae and t0eir applications ime !alue of money,

Singlepayment compound amount factor, Single payment present wort0 factor,

!Y#SECOND HALF$ E4ual payment series sin"ing fund factor, E4ual payment series

payment (resent wort0 factor- e4ualpayment series capital reco!ery factor-Jniform gradient

series annual e4ui!alent factor,Effecti!e interest rate, Eamples in all t0e met0ods.

7/25/2019 10 Mg2451 Eeca Qb

5/22

PART % A

II)*. 0at is Economic &nalysis1 rite its formula.

II)+. List few factors t0at need to 3e considered in ma"ing a Ma"e or $uy decision.II). 'efine !alue engineering.

II)/. rite any four aims of !alue engineering.

II)2. rite t0e 3asic steps of !alue engineering.

II)5. 'efine time !alue of money.

II)6. 'efine single payment compound amount factor met0od.

II)7. i!e t0e epression for single payment present wort0 factor.

II)8. 0at is Simple Cost &nalysis1 rite its formula.

II)*9. 0at is %alue &nalysis1

II)**. 'iscuss t0e symptoms fa!ouring t0e applications of !alue analysis.

II)*+. 0at is %alue1 Mention t0e types of !alue.

II)*. Classification of Function.II)*/. 0at is (erformance1

II)*2. 0at is Function wit0 an eample1

II)*5. 0at is simple interest

II)*6. How long will it ta"e any sum to triple itself at 2? simple interest rate1

II)*7. State t0e ad!antages and application areas of !alue engineering

II)*8. 0at would 3e t0e future !alue of s. *99 in!ested in a fied deposit for 2 years

wit0 an interest rate of *2? compounded annually1

II;+9. 'efine e4ual payment series sin"ing fund factor met0od.

II;+*. 'efine e4ual payment series present wort0 factor met0od.

II;++. 'efine e4ual payment series capital reco!ery factor met0od.II;+. 0at is Effecti!e Interest ate1 rite its formula.

II;+/. rite a3out t0e purc0ase and manufacturing model formula in Economic &nalysis.

II;+2. How muc0 will a piece of property 0a!e to increase in !alue o!er t0e net 2 years, if

it is to earn *9? per year on t0e purc0ase price1

II;+5. 'efine e4ual payment series compound amount factor met0od.

II;+6. 'efine uniform gradient series factor met0od.

II;+7. Eplain t0e concept of discounting.

II;+8. 'efine I and M&.

II;9. 0at is uniform gradient con!ersion1

PART % B

II)*. Eplain in details a3out criteria for ma"e or 3uy decision and its approac0es1

II)+. 0at are all t0e functions, aims of !alue engineering1 'iscuss t0e !alue engineering

procedure. 'iscuss t0e ad!antages and applications of %E.

#

0at is !alue engineering wit0 suita3le eample1 Eplain t0e !arious p0ases of !alue

engineering >o3 plan.

II). 0at is time !alue of money1 How is it useful in ta"ing in!estment related decision1

D#r

7/25/2019 10 Mg2451 Eeca Qb

6/22

0y money to 3e recei!ed in t0e future is wort0 less t0an t0e money to 3e recei!ed

immediately1

II)/. Compute t0e present !alue of s. *999 recei!a3le 5 years 0ence if t0e rate of discount

is *9?1

II)2. Compare and contrast t0e si 3asic types of time !alue of money pro3lems wit0 an

eample situation in w0ic0 t0ey would eac0 apply1

II)5. & company 0as to replace a present facility after *2 years at an outlay of s. 2,

99,999. It plans to deposit an e4ual amount at t0e end of e!ery year for t0e net *2

years at an interest rate of *7? compounded annually. Find t0e e4ui!alent amount

t0at must 3e deposited at t0e end of e!ery year for t0e net *2 years.

II)6. & person is planning for 0is retired life. He 0as *9 more years of ser!ice. He would

li"e to deposit +9? of 0is salary, w0ic0 is s. *9,999, at t0e end of t0e first year and

t0ereafter 0e wis0es to deposit e!ery year wit0 an annual increase of s. +,999 for t0e

net 8 years wit0 an interest rate of +9?. Find t0e total amount at t0e end of t0e *9t0

year of t0e a3o!e series.

II)7. & company 0as etra capacity t0at can 3e used to produce a sop0isticated fiture

w0ic0 it 0as 3een 3uying for s. 899 eac0. If t0e company ma"es t0e fitures, it will

incur materials cost of s. 99 per unit, la3our costs of s. +29 per unit, and !aria3le

o!er0ead costs of s. *99 per unit. 0e annual fied cost associated wit0 t0e unused

capacity is s. *9,99,999. 'emand o!er t0e net year is estimated at 2,999 units.

ould it 3e profita3le for t0e company to ma"e t0e fitures1

II)8. &n item 0as a yearly demand of +,999 units. 0e different costs in respect of ma"e

and 3uy are as follows. 'etermine t0e 3est option.

$uy Ma"e

Item Cost < Jnit s. 7 s. 2

(rocurement Cost < #rder s. *+9

Set-Jp Cost < Set-Jp s. 59

&nnual Carrying Cost ecti!es of plant maintenance1 Eplain different types of maintenance

adopted on an industry.

I%;*+. & mac0ine was purc0ased two years ago for s. *9,999. Its annual maintenance costis s. 629. Its life is si years and its sal!age !alue at t0e end of its life is s. *,999.

=ow, a company is offering a new mac0ine at a cost of s. *9,999. Its life is four

years and its sal!age !alue at t0e end of its life is s. /,999. 0e annual maintenance

cost of t0e new mac0ine is s. 299. 0e company w0ic0 is supplying t0e new

mac0ine is willing to ta"e t0e old mac0ine for s. 7,999 if it is replaced 3y t0e new

mac0ine. &ssume an interest rate of *+?, compounded annually. Da Find t0e

comparati!e use !alue of t0e old mac0ine. D3 Is it ad!isa3le to replace t0e old

mac0ine1

7/25/2019 10 Mg2451 Eeca Qb

16/22

I%;*. 0e failure rates of transistors in a computer are summariGed in a3le represents

Failure ates of ransistors in Computers

End of

wee"

* + / 2 5 6

(ro3a3ility

of failure

to date

9.96 9.*7 9.9 9./7 9.58 9.78 *.99

I%;*/. 0e cost of replacing an indi!idual failed transistor is s. 8. If all t0e transistors are

replaced simultaneously, it would cost s. .99 per transistor. &ny one of t0e

following two options can 3e followed to replace t0e transistors:

Da eplace t0e transistors indi!idually w0en t0ey fail Dindi!idual replacementpolicy.

D3 eplace all t0e transistors simultaneously at fied inter!als and replace t0e

indi!idual transistors as t0ey fail in ser!ice during t0e fied inter!al Dgroup

replacement policy.

Find out t0e optimal replacement policy, i.e. indi!idual replacement policy or group

replacement policy. If group replacement policy is optimal, t0en find at w0at e4ual

inter!als all t0e transistors s0ould 3e replaced.

I%;*2. &n electronic e4uipment contains *,999 resistors. 0en any resistor fails, it is

replaced. 0e cost of replacing a resistor indi!idually is s. *9. If all t0e resistors are

replaced at t0e same time, t0e cost per resistor is s. /. 0e per cent sur!i!ing, SDi at

t0e end of mont0 i is ta3ulated as follows:

i 9 * + / 2 5

SDi *99 85 78 57 6 * 9

0at is t0e optimum replacement plan1

I%;*5. 0e following ta3le gi!es t0e operation cost, maintenance cost and sal!age !alue at

t0e end of e!ery year of a mac0ine w0ose purc0ase !alue is s. +9,999.

Da Find t0e economic life of t0e mac0ine assuming interest rate Di of 9?

D3 Find t0e economic life of t0e mac0ine assuming interest rate of *2?.

7/25/2019 10 Mg2451 Eeca Qb

17/22

I%;*6. 0at is defender c0allenger concept in replacement1 Illustrate wit0 an eample.

I%;*7. Eplain t0e causes for replacement of assets, in detail wit0 eamples. D#rrace out t0e types of replacement pro3lems. D#r

0at are t0e general guidelines in framing a replacement policy1

I%;*8. Eplain wit0 eample t0e simple pro3a3ilistic models for t0e items w0ic0 fail

completely.

UNIT V

DEPRECIATION

7/25/2019 10 Mg2451 Eeca Qb

18/22

!"#FIRST HALF$ 'epreciation- Introduction, Straig0t line met0od of depreciation,

declining 3alancemet0od of depreciation-Sum of t0e years digits met0od of depreciation,

sin"ing fundmet0od of depreciation< &nnuity met0od of depreciation, ser!ice output met0od

ofdepreciation-

!Y#SECOND HALF$ E!aluation of pu3lic alternati!es- introduction, Eamples, Inflation

ad>usteddecisions procedure to ad>ust inflation, Eamples on comparison of alternati!es

anddetermination of economic life of asset.

PART % A

%)*. 'efine t0e following Da 'epreciation D3 $oo" !alue.

%)+. 0at is ser!ice output met0od of depreciation1%). 0at is sin"ing fund met0od of depreciation1

%)/. State t0e o3>ecti!es of pro!ision 3e0ind depreciation.

%)2. 0at is depreciation fund1

%)5. i!e t0e epression for t0e calculation of depreciation under sum of t0e years-digits

met0od of depreciation.

%)6. List out t0e causes of depreciation.

%)7. 0at are t0e assumptions for straig0t line met0od of calculating depreciation1

%)8. 'istinguis0 3etween declining 3alance met0od of depreciation and dou3le declining

3alance met0od of depreciation.

%)*9. rite t0e formula of sin"ing fund1%)**. rite t0e formula of straig0t line met0od of depreciation.

%)*+. rite t0e formula of dou3ling declining met0od of depreciation.

%)*. rite t0e formula of sum of t0e years-digits met0od of depreciation.

%)*/. rite t0e formula of sin"ing fund met0od of depreciation.

%)*2. rite t0e formula of ser!ice output met0od of depreciation.

%;*5. 0at is meant 3y inflation1

%;*6. 0at is meant 3y deflation1

%;*7. 0at are t0e causes of inflation1

%;*8. 0at is 3oo" !alue1

%;+9. 0at is residual !alue or scarp !alue1

%;+*. 0at is 3enefit cost ratio1

%;++. Mention t0e !arious met0ods used in depreciation calculation.

PART % B

%)*. & company 0as purc0ased an e4uipment w0ose first cost is s. *,99,999 wit0 an

estimated life of eig0t years. 0e estimated sal!age !alue of t0e e4uipment at t0e end

of its lifetime is s. +9,999. 'etermine t0e depreciation c0arge and 3oo" !alue at t0e

end of !arious years using t0e straig0t line met0od of depreciation.

7/25/2019 10 Mg2451 Eeca Qb

19/22

%)+. Find t0e depreciation annuity 3y annuity met0od after years, w0en t0e initial cost of

t0e mac0ine is s. 7 la"0s and sal!age !alue at t0e end of t0ree years is s. / la"0s.

ate of interest is *9?.

%). 0e cost of a mac0ine is s. *.5 la"0s and its scrap !alue is s. /9,999. Estimated life

2 years. Jsing sum of t0e yearKs digits met0od, determine depreciation c0arges for

eac0 year.

%)/. How to ad>ust inflation in e!aluating pu3lic alternati!es1 Eplain t0e procedure.

%)2. 0at is economic life of an asset1 How to determine it1 Eplain. Dor i!e out

eamples on comparison of alternati!es and determination of economic life of an

asset.

%)5. #riginal cost of t0e mac0ine s. *9,999@ life time 2 years@ scarp or residual !alue

s. *999@ find out t0e rate of depreciation for t0e mac0ine using straig0t line

met0od.%)6. 0e &lp0a 'rug Company 0as >ust purc0ased a capsulation mac0ine for s.

+9,99,999. 0e plant engineer estimates t0at t0e mac0ine 0as a useful life of fi!e years

and a sal!age !alue of s. +2,999 at t0e end of its useful life. Compute t0e

depreciation sc0edule for t0e mac0ine 3y eac0 of t0e following depreciation met0ods:

a. Straig0t line met0od of depreciation

3. Sum-of-t0e-years digits met0od of depreciation

c. 'ou3le declining 3alance met0od of depreciation.

%)7. & company 0as purc0ased a 3us for its officers for s. *9,99,999. 0e epected life of

t0e 3us is eig0t years. 0e sal!age !alue of t0e 3us at t0e end of its life is s.

*,29,999. Find t0e following using t0e sin"ing fund met0od of depreciation:

a. 'epreciation at t0e end of t0e t0ird and fift0 year

3. $oo" !alue at t0e end of t0e second year and sit0 year.

%)8. #riginal cost of t0e mac0ine s. +9,999@ life time 2 years@ scarp or residual !alue

s. +299@ find out t0e rate of depreciation for t0e mac0ine using dou3le declining

3alance met0od.

%)*9. Eplain sin"ing fund met0od of calculating depreciation.

%)**. Enumerate t0e met0ods of calculating depreciation1 'iscuss 3riefly t0e merits and

demerits of t0ese met0ods.

%)*+. 0e first coat of a road laying mac0ine is s. 79,99,999. Its sal!age !alue after fi!e

years is s. 29,999. 0e lengt0 of road t0at can 3e laid 3y t0e mac0ine during its

lifetime is 62,999 "m. In its t0ird year of operation, t0e lengt0 of road laid is +,999

"m. Find t0e depreciation of t0e e4uipment for t0at year.

%)*. & 0ea!y construction firm 0as 3een awarded a contract to 3uild a large concrete dam. It

is epected t0at a total of eig0t years will 3e re4uired to complete t0e wor". 0e firm

will 3uy s.*,79,99,999 wort0 of special e4uipment for t0e >o3. 'uring t0e

preparation of t0e >o3 cost estimate, t0e following utiliGation sc0edule was computed

for t0e special e4uipment:

7/25/2019 10 Mg2451 Eeca Qb

20/22

;ear * + / 2 5 6 7

Hourso3, it is estimated t0at t0e e4uipment can 3e sold at auction for s.

*7,99,999. (repare t0e depreciation sc0edule for all t0e years of operation of t0e

e4uipment using t0e ser!ice output met0od of depreciation.%)*/. & company 0as recently purc0ased an o!er0ead tra!elling crane for s. +2,99,999. Its

epected life is se!en years and t0e sal!age !alue at t0e end of t0e life of t0e o!er0ead

tra!elling crane is s. *,99,999. Jsing t0e straig0t line met0od of depreciation, find

t0e depreciation and t0e 3oo" !alue at t0e end of t0ird and fourt0 year after t0e crane

is purc0ased.

%)*2. $y using t0e pro3lem no. *2, find out t0e sum-of-t0e-years- digits met0od of

depreciation:

a. 'epreciation at t0e end of t0e fourt0 year3. 'epreciation at t0e end of t0e se!ent0 year

c. $oo" !alue at t0e end of t0e fift0 year

d. $oo" !alue at t0e end of t0e eig0t0 year

%;*5. &n automo3ile company 0as purc0ased a w0eel alignment de!ice for s. *9,99,999. 0e

de!ice can 3e used for *2 years. 0e sal!age !alue at t0e end of t0e life of t0e de!ice

is *9? of t0e purc0ase !alue. Find t0e following using t0e dou3le declining 3alance

met0od of depreciation:

a. 'epreciation at t0e end of t0e se!ent0 year3. 'epreciation at t0e end of t0e twelft0 year

c. $oo" !alue at t0e end of t0e eig0t0 year

%;*6. In a particular locality of a state, t0e !e0icle users ta"e a rounda3out route to reac0

certain places 3ecause of t0e presence of a ri!er. 0is results in ecessi!e tra!el time

and increased fuel cost. So, t0e state go!ernment is planning to construct a 3ridge

across t0e ri!er. 0e estimated initial in!estment for constructing t0e 3ridge is s.

/9,99,999. 0e estimated life of t0e 3ridge is *2 years. 0e annual operation and

maintenance cost is s. *,29,999. 0e !alue of fuel sa!ings due to t0e construction oft0e 3ridge is s. 5,99,999 in t0e first year and it increases 3y s. 29,999 e!ery year

t0ereafter till t0e end of t0e life of t0e 3ridge. C0ec" w0et0er t0e pro>ect is >ustified

3ased on $C ratio 3y assuming an interest rate of *+?, compounded annually.

%;*7. & state go!ernment is planning a 0ydroelectric pro>ect for a ri!er 3asin. In addition to

t0e production of electric power, t0is pro>ect will pro!ide flood control, irrigation and

recreation 3enefits. 0e estimated 3enefits and costs t0at are epected to 3e deri!ed

from t0is pro>ect are as follows:

a. Initial cost A s. 7,99,99,999 &nnual power sales A s. 59,99,999 &nnual

flood control sa!ings A s. 9,99,999 &nnual irrigation 3enefits A s.

7/25/2019 10 Mg2451 Eeca Qb

21/22

29,99,999 &nnual recreation 3enefits A s. +9,99,999 &nnual operating and

maintenance costs A s. 9,99,999 Life of t0e pro>ect A 29 years

3. C0ec" w0et0er t0e state go!ernment s0ould implement t0e pro>ect D&ssume i

A *+?

%;*8. wo mutually eclusi!e pro>ects are 3eing considered for in!estment. (ro>ect &*

re4uires an initial outlay of s. 9,99,999 wit0 net receipts estimated as s. 8,99,999

per year for t0e net 2 years. 0e initial outlay for t0e pro>ect &+ is s. 59,99,999, and

net receipts 0a!e 3een estimated at s. *2,99,999 per year for t0e net se!en years.

0ere is no sal!age !alue associated wit0 eit0er of t0e pro>ects. Jsing t0e 3enefit cost

ratio, w0ic0 pro>ect would you select1 &ssume an interest rate of *9?.

%;+9. & go!ernment is planning a 0ydroelectric pro>ect for a ri!er 3asin. $esides t0e

production of electric power, t0is pro>ect will pro!ide flood control, irrigation and

recreation 3enefits. 0e estimated 3enefits and costs epected from t0e t0ree

alternati!es under consideration are listed in t0e following ta3le:

a. If t0e interest rate is *9? and t0e life of t0e pro>ects is estimated to 3e /9

years, 3y comparing t0e $C ratios, determine w0ic0 pro>ect s0ould 3e

selected.

%;+*. Suppose a /9-year old man is planning for 0is retirement. He plans to retire at t0e age

of 59 and estimates t0at 0e can li!e comforta3ly on s. +/,999 per year in terms of

todayKs rupee !alue. He can in!est 0is sa!ings at *2? compounded annually. &ssume

an a!erage inflation rate of 8? for t0e net 9 years. 0at e4ual amount s0ould 0e

sa!e eac0 year until 0e retires so t0at 0e can ma"e wit0drawals at t0e end of eac0 year

commencing from t0e end of t0e +*st year from now t0at will allow 0im to li!e as

comforta3ly as 0e desires for *9 years 3eyond 0is retirement1

%;++. & mac0ine costs s. 6,99,999. Its annual operation cost during t0e first year is s.

59,999 and it increases 3y s. 6,999 e!ery year t0ereafter. 0e maintenance cost

during t0e first year is s. 79,999 and it increases 3y s. *9,999 e!ery year t0ereafter.

0e resale !alue of t0e mac0ine is s. ,99,999 at t0e end of t0e first year and it

7/25/2019 10 Mg2451 Eeca Qb

22/22

decreases 3y s. 62,999 e!ery year t0ereafter. &ssume an interest rate Ddiscounting

factor of +9? and inflation of 2?, compounded yearly. Find t0e inflation ad>usted

economic life of t0e mac0ine.

%;+. rite a3out t0e procedure to inflation ad>ustments decisions.

%;+/. rite a3out t0e met0ods of depreciation wit0 eamples.%;+2. rite on: Inflation, &ccelerated depreciation.

P'()*'(+ ,-: V('(+ ,-: R(0(3+(+ ,-:

S.J3- J*(

A6.P'./M(0

D*'*3 B. H.

A6.P'./M(0

S. M*(3+'*3

HOD/M(0PRINCIPAL