Test Bank for Engineering Economy 16th edition by Sullivan
Wicks Koelling ISBN 0133439275 9780133439274
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SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question.
Answer the question.
1) A $38,000 coil winding and unwinding machine is estimated to provide additional value to production by
$15 per unit. When the machine is operated at 58 units per hour, it needs to be cooled down after 4 hours of
operation and receive minor maintenance for 15 minutes. When the machine is operated at 118 units per
hour, it needs to be cooled down after 5 hours of operation and receive minor maintenance for 30 minutes.
The production line runs 8 hours per day. If each maintenance check costs $625 and the machine has a
useful life of 80,000 hours of operations, at what speed should the machine should be operated?
Answer: At 58 units per hour, net increase in value per day = $5363.83
At 118 units per hour, net increase in value per day = $11,922.81
Select the machine speed that provides the higher net increase in value per day machine speed B.
2) You are deciding between three types of water heaters. The associated costs are shown below. The annual cost of
operation for gas and oil heaters is estimated by 365 x 41045/EF x Fuel Cost per Btu, and the annual cost of operation for
electric water heaters is estimated by 365 x 12.03/EF x Electricity Cost per kWh. The selected heater will be used for only
one year and then sold at the market value. Which alternative should be selected?
Alternative Electric Gas Oil
Price of water heater $28,000 $23,000 $25,000
EF 2.0 0.57 0.75
Fuel cost $0.1/kWh $0.00001/Btu $0.00001/Btu
Annual maintenance costs $3000 $2200 $2500
Market value $25,200 $20,700 $22,500
Answer: Total cost of electric heater = $6019.55
Total cost of gas heater = $4762.83
Total cost of oil heater = $5199.75
Select the heater that provides the least annual costs the gas heater.
3) A garment manufacturing company makes 380,000 articles per year. Each article takes 95 minutes of direct
labor at the rate of $9.00 per hour. The overhead costs are $7.50 per direct labor hour. The average price of
the finished product is $80 per article. A new machine will reduce the direct labor hour by 15 minutes per
article. What is the maximum amount the company should pay for the new machine if it wants to break
even by the end of the first year?
Answer: $1,567,500.00
4) A local cable company has a fixed cost of $7400 per month and variable costs of $50 per month per
1
subscriber. If the company charges on average $110 per month to its customers, find the breakeven point
in terms of subscribers per month for the company.
Answer: 123.33 subscribers per month
2
5) A company estimates its annual expenses, Y, in dollars from Y = 0.235X + 7X + 4 and annual revenue in dollars
2
from 0.215X + 15X, where X is annual units sold. Find the value of X that gives maximum profit.
Answer: 200 units
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6) The annual fixed cost for an inspecting and profiling web controller manufacturing company are $44,000,
and the variable costs are $38 per unit. If the selling price per unit is p = 495 - 0.57X, what is the company's
range of profitable demand?
Answer: The range of profitable demand is 112 to 689 units per year.
7) The annual fixed cost for a light fixture manufacturing company are $38,000, and the variable costs are $40
per unit. If the selling price per unit is p = 485 - 1.395X, what is the optimum demand for a light fixture?
Answer: 159.50 units per year
8) An accounting and management consulting firm charge-out rate is $112 per hour. The maximum output
is 214,000 hours per year. The fixed cost is $610,000 per year and the variable cost is $62 per standard
service hour. What is the breakeven point in percentage of total capacity?
Answer: 5.70% of capacity
9) A headhunter company has fixed costs of $57,000 per month and variable costs of $1000 per customer
account. The company currently charges $1150 per month for each account and has 38,000 accounts. It wants
to raise the monthly fee to $1160.55 to cover enhanced features such as a new web interface and a newly
acquired database, which increases the variable cost by 9 percent. What is the new breakeven point in
number of accounts? Answer: 807.94 accounts
10) The cost for operating a commercial truck is knv
1/2 , where k is a constant of proportionally, v is velocity in
miles per hours, and n is the trip length in miles. It is estimated that at 85 mph, the average cost of operation
is $52 per mile. The truck owner wants to minimize the cost of operation, which needs to balance against
the cost of delays and unscheduled maintenance, which is assumed to be $10 per hour. What is the
optimum velocity needed to minimize the total costs?
Answer: The truck should be operated at an average velocity of 2.33 mph to minimize the total cost of
operation and delays.
11) A manufacturing company leases a machine for $31,000 per year. Each unit produced costs $36 in labor
and $65 in materials. To break even, 21,000 units must be sold. What is the price of the product?
Answer: $102.48
12) A manufacturing plant is planning to replace outdated equipment with more energy-efficient and
environmental-friendly equipment. Two models are under consideration. Model A is sold for $159,000 and
can produce at an optimum speed of 78 unit/hour. Model B is sold for the same price, but can produce at an
optimum speed of 76 unit/hour. Model A requires 6 hours of maintenance for every 4300 units produced,
while Model B requires 5 hours of maintenance for every 3300 units. The maintenance cost for both models is
$100 per hour. The variable operating cost is $340 per hour for Model A and $290 per hour for Model B. Due
to obsolete parts, there is a sunk cost of $2700 for model A and $1900 for Model B . If the price of the product
is $150 per unit and the company expects to sell 145,000 units each year, which model should be selected?
Answer: Model A: $652,284 per 145,000 units
Model B: $575,259 per 145,000 units
Select the design that minimizes the total cost for 145,000 units/year Model B.
3
13) A manufacturer of hard board and fiber cement sidings and panels purchased new equipment for its new
product line. Three alternatives are under consideration. The costs associated with each alternative are
given below. Which alternative is most economical to minimize total life cycle costs, if the life of the
equipment is estimated to be 7 years and the company operates on average 3800 hours per year? Assume
negligible salvage value.
Alternative A B C
Investment cost, $ 40,000 39,000 41,000
Fixed cost, $/year 4700 4500 4800
Variable cost, $/hour 240 235 243
Answer: A: Total life cycle costs = $6,456,900.00
B: Total life cycle costs = $6,321,500.00
C: Total life cycle costs = $6,538,400.00
To minimize life cycle costs, select Alternative B.
14) A night vision goggle manufacturer is evaluating a make-versus-purchase situation for a component used in
its low-priced products. The component can be purchased at a variable wholesale price of P = 1200 + 50X,
where X is the number of items. Alternatively, the component can be produced with a direct material cost of
$17 per item and direct labor cost of $38 per item. The manufacturing overhead is allocated at 150% of direct
labor cost per item. If the company requires, on average, 575 items each year, should the item be purchased
or manufactured?
Answer: Purchase: $29,950.00
Manufacture: $64,400.00
Select the option that has the least total cost purchasing the item.
15) An uninterruptible power system manufacturer is currently deciding between two processes for its new
automated assembly system. All defect-free units can be sold at $210 each, and all rejected units can be sold
at $11 for scrap. Other related information for each model is given below.
Process A B
Output rate, units/hour 250 230
Daily available 14 16
production time, hours
Material cost, $/unit 25 25
Variable operating cost, 45 49
$/hour
Variable overhead cost, 40 39
$/hour
Percent reject 40 38
Which process should be adopted to maximize profit per day?
Answer: Process A : Profit per day = $367,710.00
Process B : Profit per day = $401,110.40
Select the process that maximizes profit per day Process B.
4
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NEW CALEDONIA
SHIPS LOADING at the harbor, Nouméa, New
Caledonia, 12 February 1943. During the tactical
offensive of the U.S. forces throughout 1943, New
Caledonia remained a steppingstone in the supply line to
the forces fighting up the Solomon-New Guinea ladder.
SOLOMON ISLANDS
LCT(5) BEACHED FOR LOADING PURPOSES in the
Russell Islands. By 16 March, 15,669 troops of all
services had reached the Russells. Beach and antiaircraft
defenses, including long-range and fire-control radar, 155-
mm. guns, and 90-mm., 40-mm., and other antiaircraft
guns, had been established. The Allied base there was
ready to support further advances northward.
SOLOMON ISLANDS
CONVOY OF SHIPS MOVING TOWARD RENDOVA
ISLAND from Koli Point, Guadalcanal, 29 June 1943.
Only a few miles south of Munda Point in New Georgia,
Rendova was first to be occupied in strength to provide
positions for 155-mm. guns and a staging area from which
the main thrust against Munda would be made. This
operation was covered by fighter planes which shot down
more than a hundred Japanese aircraft in a few days.
SOLOMON ISLANDS
PARACHUTE, CARRYING FILM OF MUNDA POINT,
being dropped by a B-24 bomber to men on Rendova. The
landing on Rendova, made on 30 June, met with light
resistance. Fire from enemy batteries on nearby Munda
Point was effectively neutralized by naval bombardment.
SOLOMON ISLANDS
90-MM. ANTIAIRCRAFT GUN IN ACTION against
enemy aircraft over Rendova. The later need for a dual-
purpose weapon which could be fired against both aerial
and ground targets led to the development of the 90-mm.
gun M2. As soon as the Munda airfield and other
strategically important points on New Georgia were taken,
preparations were to be made for the capture of
Kolombangara.
SOLOMON ISLANDS
INFANTRY REINFORCEMENTS disembarking from
LCI(L) on New Georgia, 22 July 1943. On 2 July 1943
troops had landed on New Georgia east of Munda Point. It
was anticipated that these forces would be sufficient to
seize the airfield and other objectives within thirty days,
but because of the strong Japanese defenses encountered,
reinforcements were ordered to New Georgia in mid-July
to supplement the initial landing.
SOLOMON ISLANDS
INFANTRYMEN fording a stream along a Munda trail in
New Georgia in an advance against the enemy on 10 July
1943. The first man on the left is armed with a .30-caliber
rifle M1; second man is armed with a .30-caliber rifle
M1903. Strong enemy defenses, mud, dense jungle, and
inaccurate maps all combined to slow the advance.
SOLOMON ISLANDS
MUNDA AIRFIELD ON MUNDA POINT, 8 September
1943. On 25 August, twenty days after the airfield was
captured, all organized resistance on New Georgia ceased.
During this operation Allied planes destroyed an
estimated 350 enemy aircraft at a cost of 93 Allied planes.
SOLOMON ISLANDS
U.S. NAVY DESTROYER IN ACTION against an enemy
destroyer force off Vella Lavella. The next step up the
Solomon ladder became Vella Lavella instead of
Kolombangara Island which was bypassed. While some
units were still fighting in New Georgia, others landed on
Vella Lavella on 15 August, established a defensive
perimeter, and began the construction of an airstrip.
SOLOMON ISLANDS
NEW ZEALANDERS LANDING ON VELLA
LAVELLA, 17 September, to relieve U.S. units on the
island. Earlier in September Americans had moved north
on Vella Lavella driving the small enemy garrison into the
northwestern part of the island.
SOLOMON ISLANDS
TRUCK, LOADED WITH AMMUNITION for the field
artillery, landing on Arundel Island from an LCT(5) (top);
additional troops landing on Arundel, Rendova Island on
horizon (bottom). The results of executing a landing on
Vella Lavella and cutting the enemy’s supply and
reinforcement lines to Kolombangara and other lesser
islands which were bypassed became apparent when one
enemy position after another was abandoned, or easily
neutralized by U.S. ground and air forces.
SOLOMON ISLANDS
MEN CARRYING MORTAR SHELLS into the dense
jungle while others rush back to the beach for another load
(top); firing a 4.2-inch M2 chemical mortar into an enemy
position (bottom). Arundel was one of the lesser islands in
the New Georgia group, located between Rendova and
Kolombangara.
SOLOMON ISLANDS
155-MM. HOWITZER M1918 on carriage M1918A3 in
firing position on Arundel. Without success the Japanese
continually attempted to reinforce their remaining
garrisons in the New Georgia group of islands.
SOLOMON ISLANDS
MEN RECEIVING ORDERS for the next attack. Rifle in
right foreground is a .30-caliber M1. The dense jungle on
Arundel afforded the men excellent concealment from
Japanese pilots. Before the New Georgia operation came
to a close, the next phase of the Solomon campaign had
begun.
SOLOMON ISLANDS
NORTH AMERICAN B-25 MEDIUM BOMBERS on
raid over Bougainville (top); Navy torpedo bombers
(TBF’s) on strafing mission over Bougainville (bottom).
During the latter half of September 1943, before the New
Georgia operation had ended, the Air Forces turned its
attention to the Bougainville area.
SOLOMON ISLANDS
MARINES IN CAMOUFLAGE SUITS hit the narrow
beach at Empress Augusta Bay, Bougainville, on D Day, 1
November 1943. Prior to the landing on Bougainville, the
Treasury Islands were seized and developed as a staging
area for landing craft, and diversionary landings were
made on Choiseul in preparation for a surprise attack at
Bougainville.
SOLOMON ISLANDS
COAST GUARDMEN TRYING TO FREE AN LCVP
after discharging its load of men and supplies during the
initial attacks to secure a beachhead on Bougainville.
Enemy action and heavy surf took their toll of many boats
at the water edge. Enemy machine gun positions that
caused some disorganization among landing boats were
taken before the end of the day.
