FREE Bachelor of Science in Industrial Engineering: Engineering Economics 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.

Accepted Answer

9 years

Answer

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.

Accepted Answer

P 3,927.27

Answer

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?

Accepted Answer

12 months

Answer

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.

Accepted Answer

$5,000,000.00

Answer

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?

Accepted Answer

1,053

Answer

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.

BSIE - Bachelor of Science in Industrial Engineering Practice Test

BSIE - Bachelor of Science in Industrial Engineering Practice Test

FREE Bachelor of Science in Industrial Engineering: Engineering Economics Questions and Answers