Engr 610 cost analyiss
homeworkA
FALL
SEMESTER
2020
MIDTERM
#
1
The
Chief
Executive
Officer
(CEO)
of
a
Company
producing
a
large
array
of
electrical
equipment
has
decided
he/she
wants
to
expand
the
range
of
products
to
include
a
new
electric
motor
similar
to
a
smaller
one
the
Company
used
to
produce
years
back.
The
CEO
intends
to
locate
the
production
of
the
new
line
of
electric
motors
in
one
of
the
two
Plants
owned
by
the
Company,
one
in
the
North
West
and
the
other
in
the
South,
and
he/she
asks
the
Companys
Planning
Department
to
analyze
the
investment.
You
are
an
engineer
working
in
the
Planning
Department
and
collect
the
necessary
data:
Time
when
a
similar
smaller
electric
motor
was
produced
5
years
ago
Size
of
the
similar
smaller
electric
motor
5HP
Original
cost
of
material
for
similar
smaller
electric
motor
$300
(5yrs
ago)
Size
of
the
new
electric
motor
to
be
produced
15HP
Cost
and
Price
indexes
5
years
ago
450
Cost
and
Price
indexes
now
650
Power
sizing
exponent
for
electric
motors
0.69
Variables
depending
on
location
Cost
of
implementation
of
production
line
in
North-West
$1,000,000
Cost
of
implementation
of
production
line
in
South
$800,000
Labor
Cost
in
North-West
$75/mhr
Labor
Cost
in
South
$50/mhr
Estimate
of
mhr
to
produce
first
15HP
unit
in
North-West
40
mhr
Estimate
of
mhr
to
produce
first
15
HP
unit
in
South
50
mhr
Learning
curve
rate
in
North-West
82%
Learning
curve
rate
in
South
85%
Cost
of
Capital
in
North-West
6.5%
Cost
of
capital
in
South
7.30%
Evaluate
the
following:
1. Material
Cost
for
the
15HP
unit
today
2. Labor
cost
at
both
locations
for
producing
the
50th
unit
3. If
the
Company
wants
to
add
a
25%
margin
over
Material+Labor
cost
(and
will
not
account
for
any
other
costs),
what
would
be
the
sale
price
per
unit
produced
in
the
North-West
and
per
unit
produced
in
the
South
(use
the
labor
cost
of
the
50th
unit
as
a
constant
for
the
entire
production)
4. The
Company
can
reasonably
anticipate
making
a
net
profit
of
15%
per
unit
(i.e.
15%
of
unit
sale
price)
and
reaching
an
average
sale
volume
of
500
units
per
year.
If
the
planned
life
of
this
investment
(i.e.
the
length
of
time
the
production
of
the
15HP
motor
will
continue)
is
15
years
(assume
material
and
labor
cost
will
remain
constant
over
such
period),
what
would
be
the
Present
Value
of
the
investment
in
the
North-West
and
what
in
the
South?
