1. A statement identifying the engineering economics method used in determining

Question

1. A statement identifying the engineering economics method used in determining the answer

2. Cash Flow Diagrams for each component of the question/answer

3. The formula(s) used for each calculation – e.g., P = F / (1 + i)N (after the set of formulas for each problem have been identified, “factors” can be used to simplify the calculations and avoid errors)

4. A proper statement defining the use of the factors found in Appendix B “Interest Factors for Discrete Compounding” – e.g., Present Worth of a Future Amount at 8% annually for 25 years should be written as: “(P/F, 8%, 25) = 0.1460” prior to its use in a calculation

uestion 1 (40% One (1) of the four (4) ovens at the Cardinal Bakery is being considered for replacement. Its salvage value and maintenance costs are given in the table below. A new oven costs $80,000, and this price includes a complete guarantee of the maintenance costs for the first two (2) years, and a good portion of Years 3 and 4 maintenance costs. lts salvage value and maintenance costs are also given in the table below Both the old and new ovens have similar productivities and energy costs. Should the oven be replaced this year if the Cardinal-required MARR is 10%? Use a before-tax analysis. Old Oven New Oven Market Value / Salvage Value (@ end of Year) $20,000 Market Value / Salvage Value (@ end of Year) Year Maintenance Costs Maintenance Costs 2 3 4 $17,000 $14,000 $11,000 $7,000 $9,500 $9,600 $9,700 $9,800 $75,000 $70,000 $66,000 $62,000 $1,000 $3,000

Explanation / Answer

High employee(54 ) - 3914

Low employee (27) - 1938

Change in cost = 3914-1938 = 1976

Change in employees = 54-27= 27

Variable cost per employee = change in cost /change in employee

                                     = 1976 /27

                                        = $ 73.19 per employee

Fixed cost at low activity = 1938 - (73.19*27) = - 38.13

Cost of 55 employees = variable +fixed

                        = (73.19 *55 ) - 38.13

                         = 4025.45-38.13

                         = $ 3987.32    [approx 3987]

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