ENGINEERING ECONOMICS AND COST ANALYSIS

(Common to Automobile, Mechanical and Production)

LTP
300
UNIT I INTRODUCTION TO ECONOMICS 8
Introduction to economics Flow in an economy Law of supply and demand Concept of
engineering economics Engineering efficiency Economic efficiency Scope of
engineering economics Element of costs Marginal cost Marginal revenue Sunk cost
Opportunity cost Break-even analysis V ratio Elementary economic Analysis Material
selection for product design selection for a product Process planning.
UNIT II VALUE ENGINEERING 10
Make or buy decision Value engineering Function, aims and value engineering procedure
Interest formulae and their applications Time value of money Single payment compound
amount factor Single payment present worth factor Equal payment series sinking fund
factor Equal payment series payment present worth factor- Equal payment series capital
recovery factor Uniform gradient series annual equivalent factor Effective interest rate
Examples in all methods.
UNIT III CASH FLOW 9
Methods of comparison of alternatives Present worth method (Revenue dominated cash flow
diagram) Future worth method (Revenue dominated cash flow diagram, cost dominated cash
flow diagram) Annual equivalent method (Revenue dominated cash flow diagram, cost
dominated cash flow diagram) Rate of return method Examples in all the methods.
UNIT IV REPLACEMENT AND MAINTENANCE ANALYSIS 9
Replacement and maintenance analysis Types of maintenance Types of replacement
problem Determination of economic life of an asset Replacement of an asset with a new
asset Capital recovery with return and concept of challenger and defender Simple
probabilistic model for items which fail completely.
UNIT V DEPRECIATION 9
Depreciation Introduction Straight line method of depreciation Declining balance
method of depreciation-Sum of the years digits method of depreciation Sinking fund method
of depreciation / Annuity method of depreciation Service output method of depreciation
Evaluation of public alternatives Introduction Examples Inflation adjusted decisions
Procedure to adjust inflation Examples on comparison of alternatives and determination of
economic life of asset.
Total: 45
TEXT BOOKS
1. Panneer Selvam, R., Engineering Economics, Prentice Hall of India Ltd., 2001.
2. Chan S. Park, Contemporary Engineering Economics, Prentice Hall of India, 2002.
REFERENCES
1. Donald G. Newman and Jerome P. Lavelle, Engineering Economics and Analysis Engineering
Press, 2002.
2. Degarmo, E.P., Sullivan, W.G. and Canada, J.R., Engineering Economy, Macmillan, 1984.
1

3. Grant, E.L., Ireson, W.G. and Leavenworth, R.S., Principles of Engineering Economy, Ronald
Press, 1976.
4. Smith, G.W., Engineering Economy, Lowa State Press, 1973.

SUBJECT CODE: GE1451

SUBJECT NAME: ENGNEERING ECONOMICS AND COST ANALYSIS
UNIT-I
INTRODUCTION
PART-A
1MARKS
1. Which of the following names are used for the networks techniques?
a. PERT
b.CPM c. TOPS
d. SCANS e. all of the above f. none of the above
2. In the network diagrams
a. an activity and an event are represented by a circle
b. an activity and an event are
represented by a arrow
c. an activity is represented by an arrow and event by a
circle
d. an activity is represented by a circle and an event by an arrow
3. Which following names are used for the networks techniques? It is always possible to break up the
entire project in to number of distinct and will defined jobs or task.
each task is called
a. an event
b. an activity c. any of the above
d. none of the above
4. Which following networks all the techniques of the project management?
a. PERT
b.CPM c. MIS
d. only a, and b e. all of the above 5. Which of the
following are the basic elements project networks?
a. an event b. an activity c. a duration
d. only a, and b
e. all of the above
6. Choose the correct statement
a. the commencement or completion of an activity is called an event
b.
events acts as control points in project c. events does not require either time or
resources. d. a significant events is always positive. e. all of the above f. none of the
above
7. The event, which marks the beginning of an activity , is known as
a. dual role event b. tail event c. head event
d. initial event a, final event e. none
of the above
8. The event, which marks the completion of an activity , is known as
a. dual role event
b. tail event c. head event
d. initial event a, final event e.
none of the above
9. The event, which represents commencement of the project is known as
a. dual role event
b. tail event c. head event
d. initial event a, final event e.
none of the above
10. The event, which represents completion of the project is known as

a. dual role event

none of the above

b. tail event c. head event

d. initial event a, final event e.

11. Choose wrong statement

a. all events expect initial and finial events are dual role events . b. the events are
represented by a geometrical figure which may be circular, square, rectangle or oval in
shape.
c. the events are numbered and the number of events are written inside the
circle , square or rectangle
d. the actual performance of a task is known an event
12. The event, which represents commencement of the project is known as
a. dual role event
b. tail event c. head event
d. initial event a, final event e.
none of the above
13. an activity requires
a. time only b. resources only c. both time and resources d. none of the above
14. the activities ,in a network diagram , are represented by
a. a circle b. square
c. a rectangle d. a simple arrow from left to right e. none of
the above
15. Choose the correct statement
a. an event cannot occur until all the activities leading to it are completed . b. no activity
can start until its tail end event has occurred. c. an event cannot occur twice d. in a
network , there must be any dead end left expect the final node. e. all of the above f.
none of the above
16. A dummy in a networks requires
a. time only b. resources only c. both time and resources d. neither time not resources 17.
Which the following kinds of time estimate s are made in case of PERT analysis?
a. the optimistic time estimate b. the pessimistic time estimate c. the most likely time
estimate d. all of the above e. none of the above
18. The short est possible time , in which an activity can be completed under ideal condition , is
known as
a. the optimistic time estimate b. the pessimistic time estimate c. the most likely time estimate d. all
of the above e. none of the above
19. the maximum time in which an activity may be completed when abnormal situations prevail and
every thing wrong is known as
a. The pessimistic time estimate
(b) the optimistic time estimate
(c) the most likely time estimate
(d) none of the above
20. the time in which and activity con be completed under normal condition is known as
a. The pessimistic time estimate
(b) the optimistic time estimate
(c) the most likely time
estimate
(d) none of the above
ANSWERS
1

6 7

10

11

12

13

14

15

16

17 18 19 20

3
C
B

EE

PART-B

D BAC

2MARKS

21. What is elasticity of Demand? [AU Apr 2008]

Elasticity of demand may be defined as the degree of responsiveness of quantity
demanded to a Change in price.
22. Define the term `cost?
Cost may be defined as a total of all expenses incurred, whether paid of outstanding
In the manufacture and sale of a product.

23. What is opportunity cost? [Au Apr 2008] (May/June 2013)

Opportunity cost may be defined as the potential benefit that is given up as you seek an
alternative course of action. In other words, the expected return or benefit for gone in
rejecting one course of action for another.
24. What do you mean by marginal cost? [AU Apr2009]
The institute of cost & works Accountants of India defined marginal cost as, the amount
at any given volume of output by which aggregate cost are changed, if the volume of
output is increased or decreased by one unit.
25. Explain marginal costing?
Marginal costing is defined by the ICWA as, the ascertainment by differentiating
between fixed costs, of marginal costs and of the effect on profit of changes in volume or
type of out put.
26. What is meant by marginal revenue?
The revenue that can be obtained from selling one more unit of product is called marginal revenue.
27. Give a short note on sunk cost?
A cost which was incurred or sunk in the past and is not relevant to the particular decision making
is a sunk cost or sunk loss. It may be variable or fixed or both.
28. List out the elements of cost? [AU Apr2010] The elements of cost are:
V Materials
Labor cost
Expenses
29. Define the term costing?
Institute of costs and Management Accountants, (I.C.M.A) London has defines costing as
the ascertainment of costs. it refers to the techniques and process of ascertaining costs
and studies the principles and ruls concerning the determination of costs of products and
services .
30. What is Break-even point?
The Break-even point is, therefore, the volume of output at which neither a profit is made
nor a loss is incurred. It is a point where the total sales are equal to total cost.
31. Define P/V ratio.
4

Profit-Volume ratio expressed as a percentage indicates the relative profitability of

different products
PV ratio =
=

PART-C
16
MARKS
32. Bring out the scope of engineering economics with appropriate examples.;(AU Nov-08)
33. Explain the process of material selection in new product development. (AUApr -08)
34. Discuss the scope of engineering economics with nano technology as a new science introduction in the
industry
35. Explain why the no-profit , no-loss factor concept is considered more significant in cost profit analysis
of a product.
36. Explain the law of supply and demand. (AU Nov-09)
37. Discuss the principle of engineering economics.
38. Explain the details of element cost. (AUApr -08)
39. Aconcern manufacturing a domestic proposes to put up an improve model in the market and selling
price for the same to be decided. The selling price will be cover the overheads and ensure the
proportions of on sales as before. The material in the new model will cost Rs.4000 and the direct wages
would be Rs.2000. Following figures relate to the previous year.
Stock of material on 1st April 2006
Rs.2, 00,000
st
Stock of material on 31 march 2006
Rs.2, 20,000
Purchase of raw material in this period
Rs.5, 20,000
Manufacturing wages
Rs.1, 60,000
Work over head
Rs.80, 000
Administrative and sales overhead
Rs.80, 000
Sales during the year
Rs.9, 02,000
Suggest the selling price, over head absorption based on % of direct labor
40. From the following details, calculate the break-even point. What will be the selling
Price
per
unit
if
break-even
point
to
be
brought
to
9,000
units.
Variable cost per unit
Rs.750
Fixed expenses
Rs.27, 00,000
Selling prices per unit
Rs.1000
41. You are given the following data for the costing year of factory.
Budget output
10, 00,000 units
Fixed expenses
Rs.5, 00,000
Variables expenses
Rs.10 per unit
5

Selling price
Rs.20 per unit
Find the B.E.P and B.E.S. and the selling price is reduced to Rs.18 per unit,
What
will be the new break-even point?
42. From the following details find out profit volume ratio, B.E.P and margin of safety.
Sales
Rs.1, 00,000
Total costs
Rs.80, 000
Fixed costs
Rs.20, 000
Net profit
Rs.20, 000
43. Write on : Break even Analysis, Engineering and Economic efficiency, costs that into the fixing of
product cost.

UNIT-II VALUE ENGINEERING

PART-A
1 MARKS
44. the three time estimates are combined into a single time which is called
a. The pessimistic time (b) the optimistic time (c) the most likely time (d) the expected time
45. the expected time (tE) in terms of optimistic time (to), pessimistic time (lp) and most likely time (tl)
is given by (a)tE =to+tL+lp/

46. The deviation is the difference between

a. Mean time and time under consideration. (b) the time under consideration and the mean time
the time under consideration and optimistic time. (d) Pessimistic time and optimistic time.
47. Variance is defined as the
a. Square of the deviation
(b) mean of the squared deviation
(c) square root of the deviation
(d) none of the above
48. Standard deviation is defined as
a. Square of the variance
(b) square root of the variance
(c) Cube root of the variance
(d) cube of the variance
49. The beta distribution is one which is
a. Symmetrical about its apex
(b) not symmetrical about its apex
(c) Increasing linearly
(d) increasing hyperbolic
50. In P.E.R.T analysis
a. beta distribution is used
(b) normal distribution is used
(c) alpha distribution is used
(d) gamma distribution is used
51. For beta distribution, the standard deviation is given by

52. For beta distribution, the variance is given by

(c)

53. critical path is that sequence of activities between the start and finish of the project which
requires the
a. Shortest time (b) longest time (c) normal time
(d) none of the above
54. choose the wrong statement
a. Variance is the measure of uncertainty
b. The beta distribution has a small probability of reaching the most optimistic time (c) The curve with
its height so standardized that the area under the curve is equal to unity is known as probability
distribution
(d) Greater the variance lesser will be uncertainty
55. a zero slack is an indication of
a. An ahead of schedule condition
(b) a behind of scheduled condition
(c) An on schedule condition
(d) none of the above
56. the probability factor is given by the relation
Where Ts=scheduled time of completion and TE=Earliest expected time of completion

57. the probability factor is

a. Always positive
(b) always zero
(c) Always negative
(d) any one of the above (e)none of above
58. if the probability factor is positive ,the changes of completing the project in time are
a. Less than 50% (b) more than 50% (c) 50% (d) none of the above
59. if the probability factor is zero changes of completing the project in time are
a. Less than 50% (b) more than 50% (c) 50%
(d) none of the above
60. if the probability factor is negative, the changes of completing the project in time are
a. Less than 50% (b) more than 50%
(c) 50%
(d) none of the above
61. choose the correct statement
a. In PERT system, time estimates are not so accurate and definite as in CPM
b. In CPM, cost is the direct controlling factor while in PERT, time is controlling factor
c. In PERT, the path that joins the critical events is known as critical path
d. In CPM, the path that passes through critical activities is known as critical path (e) All of the above
(f) None of the above
62. the critical path in PERT is determined on the basis of
a. Minimum float for each activity
(b) Maximum float for each activity
(c) Slack at each event
(d) none of the above
63. the critical path in CPM is determined on the basis of
a. Minimum float for each activity
(b) Maximum float for each activity
(c) Slack at each event
(d) none of the above
ANSWERS
1
D

2
3
C
B

10

11

12

13

14

15

16

17 18 19 20

A ECA

PART-B

2 MARKS

64. What do you mean by `Make or Buy Decisions? [AU Apr2010]

Make or buy decision is a determination whether to produce a component part internally
or to buy it from an outside supplier. The Organization should evaluate the costs and
benefits of manufacturing a product or product component against purchasing it and then
select the alternative which results in the lower cost.
65. What are the different approaches followed in make or buy decision?
The following are the approaches followed in make or buy decision.
Simple cost analysis
Economic analysis
Break-even analysis
66. What is mean by value analysis/value engineering? [AU Apr2009]
Value analysis is a special type of cost reduction technique. It critically investigates and
analyses the different aspects of materials, design, cost and production of each and every
component of the product in produce it economically without decreasing its utility, function
or reliability.
67. What do you mean by value of a product?
Value differs from both price and cost in the sense that it is the cost proportionate to the
function. We can express value mathematically as Value =function or utility/ cost
68. Explain `function.
Function specifies the purpose of the product or what the product does, what is its utility etc.
69. What are the different types of values?
Cost value
Exchange value
Use value
Esteem value
70. What are the various functions of a product? ? [AU Apr2010] Functions can be classified into the
following three categories:
Primary functions
Secondary functions
Tertiary functions

71. Write any four objectives of value analysis. [AU Apr2009] [May/June 2013]
Reduce the cost of the product
Simplify the product
Use (new) cheaper and better materials
Modify and improve product design so as to make it acceptable to consumer.
72. Differentiate value analysis and value engineering.
The following table represents the major differences between the two terms.
8

Value analysis

Value engineering

Value analysis the application of a set of

techniques to an existing products with a
view to improve its value

Value engineering is the application of

exactly the same set of techniques to anew
product at design stage.

It is a remedial process

It is preventive process

73. List any four advantage of value engineering.

Value engineering/analysis identify and reduce the product cost.
It modifies and improve the product design
It increases the performance/utility of the product by economical means.
It helps to generate new ideas.
PART-B
16
MARKS
74. What Is Uniform Gradients? Illustrate with an example.
75. What is value engineering? With a example, explain the various phase of engineering plan. (AU Nov08, Apr-10)
76. How does the study of value engineering help a business manager in decision making? Illustrate your
answer with example. (AU Nov-09)
77. What is make or buy decision? Discuss the operational issue associated with the proposals
related
with make or buy decision with respect to profitability.(AU AP 09)
78. A manufacturing has extra capacity which can be used to produce gears that has been buying for Rs.
300 each. If the makes the gears , it will incur material cost of Rs.90 per unit labor cost Rs.120 per unit
and variable overhead cost of Rs30 per unit . The annual fixed cost associated with unused capacity is
Rs. 240,000. Demand over the next year is estimated at 4,000 units. A) Should the company make the
gears or continue to buy? B) Suppose the capacity could be used by another department for the
production of some pump components that would covers its fixed and variable cost estimates and
contribute Rs. 90,000 to profit. Which would be more advantages, gear production or pump components
production.
79. Mrs. Devi, an entrepreneur interested to start a business after 6 years by investing 50, 00,000. What
annual equal amount that she should deposit at the end of every year at an interest rate of 14%
compounded annually to get Rs. 50, 00,000 after 6 years from now?
80. (i) Explain the criteria for make or buy decision and its approach.
(ii) Write the equation for interest compounding of a capital (yearly, half yearly and quarterly
compounding). [May/June 2013]

UNIT-III CASH FLOW

PART-A
MARKS

1
9

81. the term which is associated with the activity times is known as
a. Slack (b) float (c) dummy
(d) all of the above (e) none of the above
82. the term which is associated with the event times is known as
(a)slack
(b)float (c)dummy (d)all of the above
(e)none of the above
83. the amount of time by which an activity can be delayed without increasing the completion time of
a project is known as
a. Slack (b) float
(c) dummy (d) constraint
84. the time span by which the starting (or finishing) of an activity can be delayed without delaying
the completion of the project is known as
a. Independent float
(b) free float (c) total float (d) interfering float
85. the time by which the activity completion time can be delayed without affecting the start of
succeeding activities is known as
a. Independent float
(b) free float (c) total float (d) interfering float
86. the difference between total float and free float is known as
a. Independent float (b) free float (c) total float (d) interfering float
87. total float is always
(a)positive (b)negative (c)zero (d)any one of the above (e)none of the above
88. if the total float is negative, the activity is called
(a)sup-critical (b) critical (c) super-critical (d) none of the above 89.
if the total float is positive, the activity is called
(a)sup-critical (b) critical (c) super-critical (d) none of the above 90.
if the total float is zero, the activity is called
(a)sup-critical (b) critical (c) super-critical (d) none of the above
91. The activities on the critical path are those activities that have total float
(a) Positive (b) negative (c) equal to zero (d) none of the above 92.
Critical path passes through those events where slack is
(a) Positive (b) negative (c) equal to zero (d) none of the above
93. The old machine should be replaced by new one when...., according to MAPI formula (a) CAM >
DAM
(b) CAM< DAM
Where CAM = Challengers Adverse Minimum, DAM = Defender's Adverse Minimum
94. The........... Is the difference between a time available to do job and the time required to do the job.
(a) Float
(b)
event
95. The critical activity has ......... floated.
(a) Maximum
(b)
zero 96. Therblig color is ..........
for search.
(a) Red
(b) black
97. For value analysis............. is used.
(a) Simplex method (b) linear programming
98. Shadow price are.......... in linear programming.
(a) Maximum cost per item (b) the values assigned to one unit of capacity.
10

99. The workman can refer to ......... for interpretation of standing orders
(a) Management
(b) labour court 100. Bar charts are suitable for .............
work.
(a) Minor
(b) major

ANSWERS
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 B A B C B D D C A B C C B A A B A C E E

PART-B
2 MARKS
101. What is revenue dominated cash flow?[AU may 2008]
The profit/revenue, salvage value of all inflows to an organization will be assigned with positive
sign and the cost outflows will be assigned with negative sign is called revenue dominated cash
flow.
102. What is cost of dominated cash flow? [May/June 2013]
The cost outflow will be assigned with positive sign and profit, revenue salvage value all inflows
etc,. Will be assigned with negative sign is called cost dominated cash flow.
103. Mention the various rate of return method. [May/June 2013]
The various rate of return methods are
Internal rate of return(IRR)
Average rate of return(ARR)
Net present value method (NPV)
Pay-back period (PBP) 104. What is rate of return?
Rate of return is the break-even interest rate, I, which equates the present worth of a
projects cash outflows to the present worth its cash inflow
105. What is present worth method?
[AU Nov 2008]
The present worth measures the surplus in an investments project at time zero (0). The present
worth of all cash inflows is computed the present worth of all cash outflows associated with
an investment of project is called present worth method.
PART-C
16
MARKS
106. An engineer is considering two types of pressure sensors for a low pressure steam line.
The costs are shown in below. Which should be selected based on a present worth
comparison at an interest rate of 16% per year?
Type X

Type Y

First cost

Rs.76,500

Rs. 1,29,000

Maintenance cost

12,000

9,000

Salvage value

20,000

Life, years

11

107. Company manufacturers amplified transducers is trying to divide between the Machines
Shown below. Compare them on the basis of annul worth using an interest of 15% per
year.
Variable cost

Dual speed

First cost

Rs.4,50,000

Rs.2,40,000

Annul operating cost

3,10,000

3,50,000

Overhaul in years 2&4

60,000

Overhaul in years 5

1,20,000

Salvage value

1,00,000

80,000

Life, years

108.Explain the importance of cash flow and hoe does the financial statement analysis play a role
in the internal economical environment for an organization(AU Apr-09)
109. Explain the all rate of return methods. (AU Nov-09, Apr-10)
110. Company has the three proposals for expanding its business operations. The details are
given below. Each alternative has significant salvages value at the end of its life. Assume
an interest rate of 15% compounded annually , find the best alternative for expanding the
business operation of the company using annual equivalent method.
Alternative

Initial Cost (Rs)

Annual cost (Rs)

Life (year)

A1

25,00,000

8,00,000

10

A2

20,00,000

6,00,000

10

A3

30,00,000

10,00,000

10

111. Explain the concept cash flow and different methods of comparison of alternatives; list
the merits and limitations of each method if any. [May/June 2013]

UNIT-IV REPLACEMENT AND MAINTENANCE ANALYSIS

PART-A
1 MARK
112. An event.......... occur twice
(a) Can
(b) cannot
113. The .......... is the basic tool in work study.
(a) Bar chart
(b) stop watch
114. To find a simpler, easier and better way of performing a job .......... is done. (a) Time study
(b)
motion study
115. When........... Break-even analysis shows profit.
(a) Sales revenue > total cost
(b) sales revenue < total cost 116. The symbol O is used
for ......... in work study.
(a) Inspection
(b) operation
117. The symbol is used for ......... in work study.
(a) Permanent storage
(b) inspection
118. The number of fundamental hand motion are........... In micromotion study.
(a) 8
(b) 16
12

119. With the help of .......... work study is done.

(a) Process chart
(b) stop watch 120. To ............. time study is done.
(a) Determine standard cost
(b) determine over head expenses 121.
For .......... motion study is done.
(a) Reducing inventory costs
(b) improving a work method 122.
For ......... templates are used.
(a) Flow of material
(b) a planning layout 123.
The........... is independent of sales forecast.
(a) Productivity
(b) inventory control
124. The economic order quantity is the........ in inventory control.
(a) Highest level of inventory
(b)
optimum lots size
125. On the theory of ......... statistical quality control techniques are based. (a) Probability
(b)
quality
126. With ......... the two- bin system is concerned.
(a) Forecasting sales (b) ordinary
procedure 127. An event is indicated by ..........
on the network.
(a) Straight line
(b)a number enclosed in a circle or a square
128. According to........... the bonus increases in proportions to the increase efficiency.
(a)Halsey plan
(b) Emerson's efficiency plan
129. Monte Carlo solution in ................... is extremely useful in queuing problem that cannot be analys
mathematically.
(a)
Queuing theory
(b) simplex method
130. Work measurement is concerned with establishing
a. A standard job
b. a time standard for a specific task c. the number of jobs for a
given time d. none of the above.
131. Time standards are used for
a. Performance evaluation of individuals workers b. incentive payments c.
production scheduling d. cost estimating e. any one of the above
f. none of the
above.
ANSWERS
1
B

2
3
B
B

10

11

12

13

14

15

16

17 18 19 20

B BBA

PART-B

2 MARK

132. What is future worth analysis? [AU Nov 2008]

Net future worth measures the surplus at time period other then 0. Future worth analysis
is particularly useful in an investment situation where we need to compute the equivalent
worth of a project at the end of its investment period.
133. What is annual equivalent method?
13

The criterion provide a basis for measuring investment worth by deter mining equal payments
on an annual basis is called annual equivalent method.
134. What is Replacement analysis? [AU Nov 2008]
Replacement analysis involves the Replacement of existing obsolete or worn-out assets in
order to avoid failure in operations. The problems often faced by management of various
industries are whether to replace equipment or to continue to use existing equipment, and
when existing equipment should be replaced with efficient equipment.
This class of decision analysis is knoen as replacement analysis.
135. What is mean by gradual failure? (AU Nov-09)
Gradual failure is progressive in nature. It can be depicted in machine equipment, which
is gradually depreciating or deteriorating with the time resulting in very high operating
and maintenance cost and/or decreased residual value.
It is easier to predict such type of failure and taking the corrective measures by providing a
replacement policy for such machine equipment.
136. Define economic service life of an asset?(AU Nov-09, Apr-10) [May/June 2013] The economic
service life of an asset is defined to be the period of useful life that minimizes the annual equivalent
cost of owning and operating the asset.
137. What are the types of replacement problem? [AU Nov 2008]
(a)
Replacement of assets that deteriorate with time (replacement due to gradual
failure, or were and tear of the components of the machine). This can be further
classified in to the following types:
1. Determination of economic life an asset 2.
Replacement of an asset with a new asset.
(b)Simple probabilistic model for assets which fails completely. (Replacement due to sudden
failure).

138.Explain annual equivalent total cost.

Annual equivalent total cost of owning and operating an asset is a summation of the
capital recovery cost (average first cost) and the annual equivalent operating cost of the
asset.
139. Name the types of maintenance.
a. Corrective or Breakdown maintenance.
b. Scheduled maintenance
c. Preventive maintenance and
d. Predictive maintenance.
140. State the main causes of breakdown.
a. Failure to replace worn out parts
b. Lack of lubrication
c. Indifference towards minor faults
141. State any two disadvantages of break down maintenance.

14

1. Delays in production 2. Faster

plant deterioration
142. Explain
Predictive maintenance.
It is comparatively a newer maintenance technique. Equipment conditions are measured
periodically or on a continuous basis and this enable maintenance men to take a timely
action such as equipment adjustments repair or overhaul.

PART-C
16 MARK
143. Discuss the concept of challenges and defender in replacing an old asset with a new asset (AU
Nov. 2008, Apr.2010)
144. Explain with examples of simple probabilistic model for the item which fail completely (AU
Nov. 2008)
145. Explain the causes for replacement of assets, in detail with examples.
146. Initial cost of a machine is Rs.6,00,000 with other details below. Determine the optimum period
for replacement of the machines.
year

Resale
Value (Rs)

4,20,000

3,00,000

2,04,000

1,44,000

96,500

Cost
(Rs)

40,000

42,700

48,000

57,000

68,000

1,40,000

1,60,000

1,80,000

2,10,000

2,50,000

Value

Cost of
labour (Rs)

147. Machine A costs Rs. 45,000 and the operating costs are estimated at Rs.1000 for the first year
increasing by Rs. 10,000 per year and subsequent years. Machine B costs Rs.50, 000 and
operating costs are Rs. 4000 in the second and subsequent years. If we now have a machine of
type A should we replace it with B? Assume that both machines have no resale value and future
costs are not discounted.
148. (i)What do you mean by replacement and maintenance analysis? State and explain different types
of replacement.
(ii) Explain the concept of life cycle analysis cost. [May/June 2013]
149. What are the objectives of plant maintenance? Explain different types of maintenance adopted on
an industry. [May/June 2013]
UNIT-V DEPRECIATION
PART-A
1 MARK
150. Which of the following are the techniques of work measurement?
a. Work sampling
b. time study c. synthesis of predetermined time standards
d. all of the above e. none of the above.
151. The standard time of an operation is defined as the time taken by a
a. Faster workers to perform that operation b. slow workers to perform that operation
15

152.

153.

154.

155.

156.

157.

158.

159.

160.

c. trained worker to perform that operation while working at a steady pace d. none of the
above
Which of the following allowance are added to the basic time of a given work element to obtain
elemental standard time
a. Relaxation allowance b. tool allowance c. reject allowance d. all of the above e.
none of the above
Choose the wrong statement
a. Actual progress of an activity in a gnat chart is shown by drawing a thicker bar
b. From network analysis, the earliest and latest completion dates of all activities are known
c. Merit rating is the procedure by which the value of individuals can be measured for selection
or promotion to a given job.
d. Standard time is equal to normal time.
The objectives of materials planning is to
a. Minimize overall production cost b. minimize production delays owingavailability of raw materials and parts c. to stabilize the production level d. all of the
above e. none of the above
The ratio of total assets to the total liabilities of a company is known as
a. Acid test liquidity ratio
b. liquidity ratio
c. primary profitability ratio
d. secondary profitability ratio.
The ratio of net profit to total assets of a company is known as
a. Acid test liquidity ratio
b. liquidity ratio
c. primary profitability ratio
d. secondary profitability ratio
the ratio of the sum of cash in hand and accounts receivable to the total liabilities of the
company is known as
a. acid test liabilities ratio b. liquidity ratio c. primary profitability ratio
d.
secondary profitability ratio
EOQ stands for
a. Elimination of quality inspection b. economic order quantity c. elements of quality control
d. end of quality inspection stage
Choose the wrong statement
a. SPT rule means the shortest processing time rule.
b. The SPT rule is the most satisfactory of all in minimizing the average waiting times
as well as the number of jobs waiting in the queue
c. Labor utilization is measured as the ratio of the total number of direct labor hours
scheduled on standard operation to the total number of direct labor hours available.
d. Machine utilization is measured as the ratio of the total number of hours the
production machines are scheduled to the productivity employed to the number of
available machine hours
e. None of the above.
The theory, which states that the average industrial worker dislikes work and wishes to avoid it
so long he can, is known as McGregors
a. Theory Z
b. theory Y c. theory X
d. theory S
16

161.

The theory, which states that physical and mental effort in work is as much desired by the
average industrial worker as play or rest, is known as McGregors
a. Theory Z b. theory Y c. theory X d. theory S
162. As the frequency of inspection increase, the frequency of breakdown
a. Increase
b. decrease
c. remains constant d.
first increase
after that
decreases.
163. If the equipment downtime due to each inspection= 3 hrs, the equipment downtime due to each
break down = 16 hrs and k=3 per month, then the optimum inspection frequency would be
equal to
a. 8 per month b. 4 per month c. 2 per month
d. one per month
164. In a process layout, the flow of work
a. Many involve back-tracking b. does not involve back-tracking c. remains in a fixed
position d. none of the above.
165. The work flows from one work centre to another in the line without back-tracking or crossmovement this type of plant layout, is known as
a. Product layout b. process layout c. flow-line layout
d. production line layout
b. Anyone except b
c. none of the above.
166. Bin cards are used for
a. Machine loading b. stores c. accounts
d. inventory control
167. Gnat charts are used for
a. Machine utilization b. production schedules c. inventory control d. none of the above
168. The unit cost in case of batch production is
a. Higher than in jobbing production b. lower than in jobbing production c. the same as
in jobbing production d. lower than in mass production.
169. In case of mass production,
a. Highly skilled workers are needed b. the unit cost is low c. the operations are capital
intensive d. the operations are labor-intensive e. the unit costs are high f.
only b and c
ANSWERS
1
D

2
3
C
D

6 7

10

11

12

13

14

15

16

17 18 19 20

BC

B BBF

PART-B

2 MARK

170. Define the term Depreciation. [AU Nov 2008]

Depreciation is the process of allocating the acquisition cost of the tangible assets less salvage
value, if any, in a systematic and a rational manner over the estimated life of the asset.
171. Mention the various method used in depreciation calculation. (AU Nov 2008) The various
methods used in depreciation calculation are:
1. Strait line method
2. Declining method
3. Sum of the years digits method
17

4. Sinking fund or annuity method

5. Service output method
172. What are the causes of depreciation?
The causes of depreciation are:
a. Were and tear
b. Depletion
c. Obsolescence
d. Lapse of time
173. Write five reasons for providing depreciation. [AU Nov 2008] The reasons for providing
depreciations are:
1. To know the correct profits 2. To
show correct financial position.
3.
To make provision for replacement of asset
4.
To compute tax liability
5.
To decide for show much to buy or sell the assets in the second hand market
174. What is evaluation of public alternatives?
Evaluation of public alternatives is nothing but the selecting of best alternative from the
available alternatives.
175. Define the term inflation? (AU May2010)
Inflation may be defined as a sustained in the general price level. It is an economic
condition where there is a rise in prices resulting in the fall in the purchasing power of
money
176. What is service output method of depreciation? (AU Nov 2008)
Service output method of depreciation is a type of computing depreciation base on service
rendered by an asset
177. What is sinking fund? [May/June 2013]
A depreciation fund equal to be actual loss in the value of the asset is estimated for each year.
This amount is invested outside the business in a separate account called sinking fund.

178.

What is amortization? [May/June 2013]

Amortization is a routine decrease in value of an intangible asset, or the process of paying off a debt
over time through regular payments.
Amortization refers to the expensing of intangible capital assets (intellectual property: patents,
trademarks, copyrights. Etc,) in order to show their decrease in value as a result of use or passasge of
time.

PART-C
16 MARK
179. How to adjust inflation is evaluating public alternatives? Explain its procedure. (AUApr-10)
180. Find the depreciation annuity by annuity method after three years, when initial cost of the machine is
Rs 8, 00,000 and salvage value at the end of three years is Rs. 4, 00,000. Rate of interest 10%.
181. What is economic life an asset? How to determine it? Explain. (AUApr-09)
182. The cost of the machine is Rs.1, 60,000 and its scrap value is Rs. 40,000. Estimated life is 5 years.
Using sum of year digit method, determine the deprecia 183. Discuss all methods of depreciation
(AU Nov-08, Apr-10) 184. tion charges for each three years.
18

185.
186.

What is functional depreciation? [May/June 2013]

187.

Write on: Inflation, Accelerated Depreciation. [May/June 2013]

What is mean by depreciation? Explain any 4 methods with example [May/June 2013]

19