CONFIDENTIAL

UNIVERSITI TUN HUSSEIN ONN MALAYSIA

FINAL EXAMINATION
SEMESTER I
SESSION 2015/2016

COURSE NAME : ENGINEERING ECONOMY

COURSE CODE : BPK30902

PROGRAMME : BND/BNE/BNF/BNG/BNM

EXAMINATION DATE : DECEMBER 2015/JANUARY 2016

DURATION : 2 HOURS

INSTRUCTION :
ANSWER ALL QUESTIONS

THIS QUESTION PAPER CONSISTS OF EIGHT (8) PAGES

Q1 a) Company A is a manufacturing company that runs a number of machine tools
each with a maximum production capacity of 150 items per day. The
CONFIDENTIAL
management of the company claims that the economic breakdown breakeven
point with these machines is 70 items per day. The company’s yearly expenses
are shown in Table Q1(a):

Table Q1(a)
Ringgit Malaysia
Descriptions:
(RM):
Office rental 42,000
Labour’s wages 43,200
Clerk’s salary 10,800
Acrylic sheets 225,000
600 bags of cement 6,720
Insurance and taxes 7,250
Maintenance of two machines 9,000
180kg of polyester resin 5,400
TC …. (1m)

(i) Draw a conceptual graph to show the total revenue and total costs that
this company is experiencing.
Costs
(2 marks)
TR
…. (1m)

Volume

(ii) Identify 4 types of fixed costs that the company should carefully
examine to lower its breakeven point.
(4 marks)

1. Office rental (1m)

2. Clerk’s salary (1m)
3. Insurance and taxes (1m)
4. Maintenance of two machines (1m)

(iii) Identify 4 types of variable costs that could possibly be reduced to

lower the breakeven point.
(4 marks)

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 1. Labour’s wages (1m)
2. Acrylic sheets (1m)
3. 600 bags of cement (1m)
4. 18kg of polyester resin (1m)

b) You are appointed as a contractor for a Railway project. One of your tasks is
to set up the asphalt-mixing plant equipment which has a choice of two sites.
You estimate that it will cost RM5.40 per cubic meter mile (m 3-mile) to haul
the asphalt-paving material from the mixing plant to the job location. Refer to
Table Q1(b) below for the factors relating to the two sites.

Table Q1(b)
Cost factor Site A Site B
Average hauling distance 4 miles 3.3 miles
Monthly rental of site RM10,000 RM9,000
Cost to set up and remove
RM89,000 RM75,000
equipment
RM5.40/ RM5.40/
Hauling expenses
yd3-mile yd3-mile
Flag person RM90/day Not required

The job requires 50,000 yd3 of mixed-asphalt-paving material. You are given
by your client to complete the works in five months (20 weeks of 6 working
days per week). The delivered paving material is paid for RM29 per yd3.

(i) Compute all fixed costs and variable cost for the two sites.
(10 marks)
Cost factor Site A Site B
Rental RM10,000 x 5 RM9,000 x 5
= RM50,000 = RM45,000
Setup/removal RM89,000 RM75,000
Hauling RM5.40 x 4 x 50,000 RM5.40 x 3.3 x 50,000
expenses = RM1,080,000 = RM891,000
Flag person RM90 x 20 x 6 0
= RM10,800
Total RM1,229,800 RM1,011,000
(5m) (5m)

(ii) Choose the best site.

(2 marks)

Site B is chosen because the total cost is lower (2m)

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 (iii) If Total Revenue (TR) is equal to Total Cost (TC), calculate how much
cubic yard you have to deliver before you start making a profit.
Compute ONLY the site you already choose in (ii).
(3 marks)

TC = TR (1m)
RM120,000 + 17.82x = 29x (1m)
11.8x = RM120,000
x = 10,733 yd3 delivered (1m)

Q2 a) Table Q2(a) below shows the past price of Commodities Oil prices since 2012,
whereby 2013 is the reference year having 1064 as an index value. The weight
place on Palm Oil is one (1) time, Soybean Oil is one and half (1.5) times and
Coconut Oil is two (2) time.

Table Q2(a)
Price (RM/mt) in Year
Commodities Oil
2012 2013 2014
Palm Oil 3,007 2,662 2,366
Soybean Oil 4,273 3,381 2,395
Coconut Oil 3,552 3,009 4,095

(i) Calculate a weighted index for the price of Commodities Oil per mt in
2014.
(4 marks)

W1 (Cn1/Ck2) + W2 (Cn2/Ck2) + W3 (Cn3/Ck3)

In2014 = ---------------------------------------------------------- X I k2013 (1m)
W1 + W2 + W3

1(2366/2662) + 1.5(2395/3381) + 2(4095/3009)

= ----------------------------------------------------------------- X 1064 (1m)
1 + 1.5 + 2

= 0.8888 + 1.0625 + 2.7218

------------------------------- X 1064 (1m)
4.5
= 1104.95 OR 1105 (1m)

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 (ii) Calculate the corresponding 2015 prices of Commodities Oil from 2014
if 946 is the index value in 2015.
(6 marks)
Cn2015palm = Ck2014 (In2015/Ik2014)
= 2366 (946/1105) (1m)
= 2025.55 OR 2026 (1m)

Cn2015soybean = Ck2014 (In2015/Ik2014)

= 2395 (946/1105) (1m)
= 2050.38 OR 2050 (1m)
Cn2015coconut = Ck2014 (In2015/Ik2014)
= 4095 (946/1105) (1m)
= 3505.76 OR 3506 (1m)

b) Precast Manufacturing Sdn. Bhd. launches a new precise concrete product.

The information on their product is shown in Table Q2(b). Their competitor,
Berjaya Maju Sdn. Bhd. offers a similar product at RM2,500 per unit. An 87%
learning curve applies to the labour required and it takes 12 hours to complete
the first unit. For estimation purposes, Precast Manufacturing Sdn. Bhd.
decides to use time for completing the 15 th unit as a standard. The profit
margin is based on total manufacturing costs.

Table Q2(b)
Directory labour cost RM65.00/hour
Factory overhead 115% of direct labour
Production materials RM1115/unit

(i) Determine the time required to finish the 15th unit.

(3 marks)
Zu = K(un)
= 12 (15) (log 0.87/log2) (1m)
= 6.96 hours (2m)

(ii) Calculate the total cost of production.

(5 marks)
Total cost of product
= Dir. Labor cost + Factory overhead + Material cost (2m)
= (RM 65 x 6.96) + [1.15 (RM 65 x 6.96)] +RM 1115 (2m)
= RM 2087.66 (1m)

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 (iii) Determine the maximum profit margin.
(2 marks)
Maximum profit = RM 2,500 – RM 2,087.66 / RM 2087.66
= 19.7 % (2m)

(iv) Compute the number of units that must be sold to achieve a profit of
RM45,000 if the selling price of product is RM2,750.
(5 marks)
Profit/ unit = Selling price – total cost
= RM 2750 – RM 2087.66 (1m)
= RM 662.34 (1m)

No. of units required = RM 45,000 / RM 662.34 (1m)

= 68 units (2m)

Q3 a) You are given an alternative to purchase or lease a machinery costing

RM300,000 for five (5) years in two schemes, firstly purchase with 2% per
annum using yearly compounded interest per annum and secondly by leasing
with a RM5,600 monthly payment.
Suggest the better alternative.
(5 marks)
Compounded interest
= RM300,000 (1+0.02)5
= RM331,224.24 (2m)
5 years = 60 months
Monthly payment = RM331,224.24/60
= RM5,520.40 (2m)

Answer: the first alternative because the monthly payment is lesser. (1m)

b) If you place the RM250,000 in a fixed deposit account with 5% simple interest
per annum and added RM50,000 beginning of the third year which received
semi-compounded interest of 4.5% yearly,
Calculate the total returns of your savings after five (5) years.
(5 marks)
Interest FD = (RM250,000) (2) (0.05)
= RM25,000

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 Total FD = RM25,000 + RM250,000
= RM275,000 (2m)
Added RM50,000,
Total = RM275,000 + RM50,000
= RM325,000
Semi-compounded,
Total = RM325,000 (1 + 0.045/2)2x3
= RM371,418.27 (2m)
Total of Returns = RM371,418.27 – (RM250,000 + RM50,000)
= RM71,418.27 (1m)

c) A new piece of equipment has been proposed by Razlan Consultant to upgrade

the water quality at XYZ campsite. The investment cost is RM35,000 with
salvage value of RM3,000 after 4 years. The revenue generated from the
installation of the equipment minus the operating and maintenance cost of the
equipment is RM6,500 per year. The MARR is 15% per year.

(i) Draw the cash flow diagram.

(5 marks)

(ii) Determine whether the equipment deserve to be installed by using the

Future Worth (FW) method.
(10 marks)

FW = inflow – outflow
= [RM6,500 (F/A, 15%, 4) + RM3,000] –
RM35,000 (F/P, 15%, 4) (4m)
= RM6,500 (4.9934) + RM3,000 – RM35,000 (1.7490) (2m)
= - RM25,757.90 < 0 (2m)
Answer: The equipment deserve not to be installed. (2m)

Q4 a) JAMA Corporation (Japan-Malaysian Company) is considering a new project

to construct new railway sand managing the High Speed Rail (HSR) trains
from Kuala Lumpur station to Johor Bahru. The land acquisition is estimated to
be RM62 million. Construction cost for the railways and other facilities
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 including the high-speed trains is expected to be RM208 million with an
additional annual maintenance cost of RM22 million. Finally, the projected
increase in public transport travelers will require an additional railways traffic
controller costing RM20 millions with an annual cost of RM8 million. Annual
benefits of the railways have been estimated as in Table Q4(a).

Table Q4(a)
Descriptions RM (million)
Tickets collected 36
Rental of shop lots receipts from entrepreneurs 16
Parking lots charges to visitors 14
Convenience benefit to the local community 16
Additional tourism income to the state of Johor 12

(i) Apply the B-C ratio method for both conventional and modified cases
using PW and AW methods with the study period of 20 years and a
MARR of 12% per year to determine whether the JAMA Corporation
should proceed with the HSR project.
(10 marks)

Conventional B-C with PW

B-C = 94mil (P/A,12%,20) / [290mil + 30mil (P/A,12%,20)
= 94mil (7.4694) / [290mil + 30mil (7.4694)
= 1.3658 >1, accepted (2.5m)

Modified B-C with PW

B-C = [94mil (P/A,12%,20) – 30mil (P/A,12%,20) / 290mil
= [94mil (7.4694) – 30mil (7.4694) / 290mil
= 1.6484 > 1, accepted (2.5m)

Conventional B-C with AW

B-C = 94mil / 290mil (A/P,12%,20) + 30mil
= 94mil / 290mil (0.1339) + 30mil
= 1.3656 >1, accepted (2.5m)

Modified B-C with AW

B-C = 94mil – 30mil / 290mil (A/P,12%,20)
= 94mil – 30mil / 290mil (0.1339)
= 1.6482 > 1, accepted (2.5m)

b) Three mutually exclusive alternatives public-works projects are currently

under consideration. Each of the projects has a useful life of 30 years and

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MARR of 15% per year. Their respective costs and benefits are included in
Table Q4(b).

Table Q4(b)
Particulars Project A Project B Project C
Capital Investment 10,300,000 12,500,000 15,700,000
Annual Operating & 1,300,000 1,200,000 1,000,000
Maintenance Costs
Market Value 1,250,000 1,520,000 1,950,000
Annual Benefits 2,250,000 2,600,000 2,850,000

(i) Using present worth method, analyse B-C ratio for each alternative.
(10 marks)

B – C (A) = RM2,250,000 (P/A,15%,30) / RM10,300,000 –

RM1,250,000 (P/F,15%,30) + RM1,300,000 (P/A, 15%,
30)
= RM2,250,000 (6.5660) / RM10,300,000 –
RM1,250,000 (0.0151) + RM1,300,000 (6.5660)
= 0.7851 < 1, not accepted (3m)

B – C (B) = RM2,600,000 (P/A,15%,30) / RM12,500,000 –

RM1,520,000 (P/F,15%,30) + RM1,200,000 (P/A, 15%,
30)
= RM2,600,000 (6.5660) / RM12,500,000 –
RM1,520,000 (0.0151) + RM1,200,000 (6.5660)
= 0.838 < 1, not accepted (3m)

B – C (C) = RM2,850,000 (P/A,15%,30) / RM15,700,000 –

RM1,950,000 (P/F,15%,30) + RM1,000,000 (P/A, 15%,
30)
= RM2,850,000 (6.5660) / RM15,700,000 –
RM1,950,000 (0.0151) + RM1,000,000 (6.5660)
= 0.8415 < 1, not accepted (3m)

Answer: no project is acceptable (1m)

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(ii) Select project (mutually exclusive projects) should be considered
according to the evaluation by B-C ratio.
(5 marks)

A (RM) B (RM) C (RM)

PW cost 18,816,925 20,356,248 22,236,555
PC benefit 14,773,500 17,071,600 18,713,100

B-C (A) = RM 14,773,500 / RM 18,816,925

= 0.7851 <1, drop A (1m)

B-C (B) = RM 17,071,600/ RM 20,356,248

= 0.83 <1, drop B (1m)

B-C (C) = RM 18,713,100/ RM 22,236,555

= 0.8415 <1, drop C (1m)

Answer: no project is selected (2m)

- END OF QUESTIONS-

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 LIST OF FORMULA
In= [W1 (Cn1/Ck2) + W2 (Cn2/Ck2) + W3 (Cn3/Ck3)/W1 + W2 + W3] xIk
1. Cn = Ck (In/Ik)
2. Zu = K(un)
3. n = log s / log2
4. F/P = ( 1+i)n
5. P/F = (1+i)-n
6. F/A = [(1+i)n – 1] /i
7. P/A = [1-(1+i)-n] /i
8. A/F = i/ [(1+i)n-1]
A/P = i/[1-(1+i)-n]
FVn = PV (1 + [n x r])
Conventional B-C ratio with PW
B-C = PW(B) ÷ [(I – PW(MV)) + PW(O&M)]
Modified B-C ratio with PW
B-C = [PW(B) – PW(O&M)] ÷ [ I – PW(MV)]
Conventional B-C ratio with AW
B-C = AW(B) ÷ [CR + AW(O&M)]
Modified B-C ratio with AW
B-C = [AW(B) – AW(O&M)] ÷ CR
LIST OF DISCRETE COMPOUNDING

1. (F/P, 12%, 20) : 9.6463

2. (P/F, 12%, 20) : 0.1037
3. (F/A, 12%, 20) : 72.0524
4. (P/A, 12%, 20) : 7.4694
5. (A/F, 12%, 20) : 0.0139
6. (A/P, 12%, 20) : 0.1339
7. (F/P, 15%, 4) : 1.7490
8. (P/F, 15%, 4) : 0.5718
9. F/A, 15%, 4) : 4.9934
10. (P/A, 15%, 4) : 2.8550
11. (A/F, 15%, 4) : 0.2003
12. (A/P, 15%, 4) : 0.3503
13. (F/P, 15%, 30) : 66.2118
14. (P/F, 15%, 30) : 0.0151
15. (F/A, 15%, 30) : 434.7451
16. (P/A, 10%, 30) : 6.5660
17. (A/F, 10%, 30) : 0.0023
18. (A/P, 10%, 30) : 0.1523

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