Free Bachelor of Science in Industrial Engineering: Engineering Economics Questions and Answers — Questions and Answers
Question 1: According to ABC Corporation's policy, any new equipment should have an annual depreciation cost that is no more than 20% of the original cost and has no salvage value. If the SYD method of depreciation is being used, ascertain the duration of service life required.
- 10 years
- 9 years (Correct answer)
- 8 years
- 7 eyars
Correct answer: 9 years
The Sum-of-Years-Digits (SYD) depreciation for the first year is (N / SYD) * (Original Cost - Salvage Value). Given no salvage value, this simplifies to (N / (N(N+1)/2)) * Original Cost, or (2 / (N+1)) * Original Cost. If annual depreciation is no more than 20% of the original cost, then (2 / (N+1)) <= 0.20. Solving for N, we get 2 <= 0.20(N+1), which simplifies to 10 <= N+1, meaning N >= 9. Thus, the minimum service life is 9 years.
Question 2: The cost of an asset is P9,000.00. After a ten-year anticipated economic life, it will be sold for P 1,000.00. Utilizing the sum-of-years-digit approach, determine the depreciation over the first three years.
- P 3,792.72
- P 3,729.27
- P 3,927.27 (Correct answer)
- P 3,279.27
Correct answer: P 3,927.27
First, calculate the depreciable base: P9,000 (cost) - P1,000 (salvage) = P8,000. The sum of years' digits for 10 years is 10*(10+1)/2 = 55. Depreciation for year 1 is (10/55)*P8,000 = P1,454.55. For year 2, it's (9/55)*P8,000 = P1,309.09. For year 3, it's (8/55)*P8,000 = P1,163.64. Summing these, the total depreciation over the first three years is P1,454.55 + P1,309.09 + P1,163.64 = P3,927.28 (due to rounding, P3,927.27 is the closest option).
Question 3: 3200 ice cans are needed each month, according to Mr. Davis' production. The cost of cutting one unit using a manual guillotine is P25.00. Mr. Davis was offered a P275,000.00 electrically controlled hydraulic guillotine, which reduces the cost of cutting units by 30%. How many months, ignoring the expense of money, will Mr. Davis need to purchase the equipment in order to recoup his investment?
- 13 months
- 12 months (Correct answer)
- 10 months
- 11 months
Correct answer: 12 months
To determine the payback period, first calculate the monthly savings. The cost reduction is 30% of P25.00, which is P7.50 per unit. With 3200 units needed monthly, the total monthly savings are 3200 * P7.50 = P24,000. The equipment cost is P275,000. Dividing the equipment cost by the monthly savings (P275,000 / P24,000) yields approximately 11.46 months. To fully recoup the investment, Mr. Davis would need 12 months.
Question 4: With an initial investment of $50,000,000, the Saudi Arabian Oil Refinery drilled an oil well that is thought to hold 5,000,000 barrels of oil. What is the depletion fee for the year when 500,000 barrels of oil are produced? When calculating depletion, use the unit or factor technique.
- $5,050,000.00
- $5,025,000.00
- $5,010,000.00
- $5,000,000.00 (Correct answer)
Correct answer: $5,000,000.00
The depletion cost per unit is calculated by dividing the initial investment by the total estimated barrels of oil. This is $50,000,000 / 5,000,000 barrels = $10 per barrel. To find the depletion fee for the year, multiply the depletion cost per unit by the number of barrels produced in that year: $10/barrel * 500,000 barrels = $5,000,000.00. This method allocates the cost of the natural resource based on its extraction.
Question 5: The labor cost of producing a certain item is P 115, the material cost is P 76, and the variable cost is P 2.32. How many units must be produced each month at a unit price of P 600, with a monthly overhead of P 428,000, for the company to break even?
- 1,053 (Correct answer)
- 1,043
- 1,037
- 1,033
Correct answer: 1,053
To find the break-even point, first calculate the total variable cost per unit: P115 (labor) + P76 (material) + P2.32 (variable cost) = P193.32. The contribution margin per unit is the unit price minus the variable cost: P600 - P193.32 = P406.68. Finally, divide the total monthly fixed costs (P428,000) by the contribution margin per unit: P428,000 / P406.68 ≈ 1052.54 units. Since you cannot produce a fraction of a unit, 1,053 units must be produced to break even.
Question 6: A manufacturing company runs a single line for assembling signal generators. 35 units per week are needed for the generators. The line is open seven hours a day, five days a week. What is the maximum number of hours the line needs to run in order to produce one unit to satisfy demand?
- 1.6 hours per unit
- 1.4 hours per unit
- 1.2 hours per unit
- 1.0 hour per unit (Correct answer)
Correct answer: 1.0 hour per unit
The manufacturing line operates 7 hours a day for 5 days a week, totaling 35 available hours per week. The demand is for 35 units per week. To determine the maximum time available per unit, divide the total available hours by the number of units needed: 35 hours / 35 units = 1.0 hour per unit. This means each unit must be produced within one hour to meet the weekly demand.
Question 7: Either tinned wire or enameled wire can be used to construct a 100-pair telephone switchboard cable. 400 soldered connections will be present. On an enameled wire, a connection will cost P1.65, but on a tinned wire, it will cost P1.15. A 100-pair cable made of tinned wire costs P 0.75 per linear foot, compared to P 0.55 for cables made of enameled wire. To ensure that each installation costs the same amount, calculate the cable run's length in feet.
- 1,100 feet
- 1,120 feet
- 1,000 feet (Correct answer)
- 1,040 feet
Correct answer: 1,000 feet
Let L be the cable length in feet. For tinned wire, total cost = (400 connections * P1.15/connection) + (L feet * P0.75/foot) = P460 + P0.75L. For enameled wire, total cost = (400 connections * P1.65/connection) + (L feet * P0.55/foot) = P660 + P0.55L. Setting the costs equal: P460 + P0.75L = P660 + P0.55L. Solving for L: P0.20L = P200, which gives L = 1,000 feet.
Question 8: A reputable shoe maker charges P 900.00 per pair for labor and P 800.00 for materials to create a pair of Lebron James branded shoes. The company has monthly fixed costs of P 5,000,000 and variable expenditures of P 400.00 per pair. Lebron James receives P 1,000 in royalties for each pair of shoes sold. How many pairs must be made each month for the maker to break even if the shoes retail for P 5,000 per pair?
- 2,890
- 2,712
- 2,632 (Correct answer)
- 2.59
Correct answer: 2,632
First, calculate the total variable cost per pair: P900 (labor) + P800 (materials) + P400 (variable expenses) + P1,000 (royalties) = P3,100. The contribution margin per pair is the selling price minus the total variable cost: P5,000 - P3,100 = P1,900. To find the break-even point in pairs, divide the monthly fixed costs (P5,000,000) by the contribution margin per pair: P5,000,000 / P1,900 ≈ 2631.58 pairs. Therefore, 2,632 pairs must be made to break even.
Question 9: What does it mean to analyze and assess the financial effects of engineering applications, designs, and projects using the theories and principles of economics?
- Design cost analysis
- Engineering economy
- Engineering cost analysis
- Economic Analysis (Correct answer)
Correct answer: Economic Analysis
Economic Analysis is the systematic process of evaluating the financial implications and effects of various projects, designs, and applications, particularly within an engineering context. It involves applying economic theories and principles to assess costs, benefits, and overall financial viability. This field helps engineers make informed decisions by considering the monetary impact of their work.
Question 10: What is the standard unit that serves as the foundation for a nation's domestic money supply?
- Cash or check
- Monetary unit
- Currency
- Foreign exchange (Correct answer)
Correct answer: Foreign exchange
While 'monetary unit' refers to the specific denomination (e.g., dollar, peso), 'foreign exchange' represents the system by which a nation's currency is valued and traded against other currencies. The stability and convertibility of a domestic money supply are fundamentally linked to its standing in the foreign exchange market, which influences its purchasing power and international acceptance, thus serving as a crucial foundation for its overall economic function.
Question 11: Any tangible economic good that directly or indirectly contributes to the satisfaction of human need is described as what?
- Goods or commodities (Correct answer)
- Commodities
- Goods
- Services
Correct answer: Goods or commodities
Goods are tangible items that are produced, bought, and sold to satisfy human wants and needs. Commodities are a specific type of good, typically raw materials or primary agricultural products, that are interchangeable and traded in bulk. Both terms collectively describe tangible economic items that directly or indirectly contribute to human satisfaction.
Question 12: Any physical economic activity that directly or indirectly contributes to the gratification of human need is characterized as what?
- Goods
- Services (Correct answer)
- Goods or commodities
- Commodities
Correct answer: Services
Services are intangible economic activities performed by one person or entity for another, directly or indirectly contributing to the satisfaction of human needs. Unlike goods, services cannot be physically owned or stored; their value is derived from their performance or the experience they provide. Examples include education, healthcare, and transportation.
Question 13: Which two categories of products and services are there?
- Raw and finished
- Local and imported
- Ready-made and made-to-order
- Consumer and producer (Correct answer)
Correct answer: Consumer and producer
Products and services are broadly categorized based on their intended end-user. Consumer goods and services are purchased by individuals for personal consumption, directly satisfying their needs. Producer goods and services, also known as capital goods or industrial goods, are purchased by businesses to be used in the production of other goods and services, rather than for direct consumption.
Question 14: What is used to describe the products and services needed to meet human needs and activities?
- Necessity (Correct answer)
- Luxury
- Consumer products
- Producer products
Correct answer: Necessity
A necessity refers to a good or service that is considered essential for human survival, basic well-being, or to meet fundamental needs and activities. These are distinct from luxuries, which are desired but not critical for basic living. Understanding necessities helps in economic planning and policy-making regarding essential provisions.
Question 15: What are the fundamental accounting equations?
- Owner’s equity = liability – assets
- Owner’s equity = assets + liability
- Liability = assets + owners’ equity
- Assets = liability + owner’s equity (Correct answer)
Correct answer: Assets = liability + owner’s equity
The fundamental accounting equation, also known as the balance sheet equation, is Assets = Liabilities + Owner's Equity. This equation represents the core relationship between what a company owns (assets), what it owes to others (liabilities), and the residual claim of its owners (owner's equity). It must always remain in balance, reflecting the financial position of an entity.
Question 16: What is used to describe the exchange process that connects the producers and consumers of a good, factor of production, or security?
- Office
- Store
- Market (Correct answer)
- Mall
Correct answer: Market
A market is an economic system or physical place where buyers (consumers) and sellers (producers) interact to exchange goods, services, or factors of production. It facilitates the process of supply and demand, determining prices and quantities traded. This exchange process is fundamental to how economies allocate resources and satisfy needs.
Free Bachelor of Science in Industrial Engineering: Engineering Economics Questions and Answers
According to ABC Corporation's policy, any new equipment should have an annual depreciation cost that is no more than 20% of the original cost and has no salvage value.
If the SYD method of depreciation is being used, ascertain the duration of service life required.