UNIVERSITI TUN HUSSEIN ONN MALAYSIA

TEST 1 - SKEMA
SEMESTER I
SESSION 2017/2018

COURSE NAME : ENGINEERING ECONOMY

COURSE CODE : BPK30902

PROGRAMME : BFF

EXAMINATION DATE : 2ND NOVEMBER 2017

DURATION : 1 HOUR

INSTRUCTION : ANSWER ALL QUESTIONS

THIS QUESTION PAPER CONSISTS OF TWO (2) PAGES

QUESTION 1

a) Classify each of the following cost items below as fixed cost or variable cost.
(12 marks)

Raw materials Administrative salaries

Direct labor Payroll taxes
Insurance (building and equipment) Clerical salaries
Supplies Sales commissions
Utilities Rent
Property taxes
Interest on borrowed money.

(b) Why are cash flows considered to be the weakest part of an engineering economy
analysis?
(2 marks)

Cash flows are considered to be the weakest part of an engineering economy

analysis because they are estimates of what is going to happen in the future, and
our ability to forecast future events is obviously imperfect.

(c) What is the term for the result of subtracting cash outflows from cash inflows?
(2 marks)

The net cash flow (NCF) results from the subtraction:

cash inflow – cash outflow
 (d) The end-of-period-convention does not mean end of calendar year. What does it
mean?
(2 marks)
End-of-period-convention means end-of-interest period.

(e) “Engineering economy is useful in the selection of alternatives, not their

identification.”
Explain this statement.
(2 marks)
Engineering economy is used to identify the most economical alternative from
those that have been identified as alternatives. It does not assist in the
determination of what the alternatives are.

QUESTION 2

(a) UTHM Student's Club was considering of chartering a bus for Genting Highland trip
after their final exam. They have planned to provide transportation, food, chalet fees
and refreshment. Table Q2 categorized the predicted expenses as either fixed or
variable.
Table Q3: Predicted expanses
Fixed Cost Amount (RM) Variable Cost Amount (RM)
Bus rental & petrol 250 Bus Ticket 30
Challet 200 Refreshment 30
Food 100
Bus driver 100

(i) Calculate all fixed, variable and total cost for this trip.
(8 marks)

Fixed cost = Bus rental & petrol+ challet + Food + Bus driver
= 250 + 200 + 100 + 100
= RM 650 ….3mark
 Variable cost =Bus ticket + Refreshment
= 30 + 30
= RM 60 per person…3 mark

Total Cost = Fixed cost + Variable cost

= RM 650 + RM 60 * (Number of person on the trip)..2 mark

(ii) Write the equation (in words) of the total revenue for this trip.
(2 marks)

Total Revenue = (Charter ticket price)* (Number of person on the trip)

(iii) If the bus capacity is 40 seats and the organizer believes that he could attract 40
students at a charter ticket price of RM 80 per person, calculate the profit of this
trip.
(5 marks)

Total Profit = Total Revenue - Total cost

= (80 * 40 ) – ( 650 + 60 *40)
= 3200 – (650+ 2400) = 150

(iv) Calculate the minimum customers that required by the organizer to achieve
breakeven.
(5 marks)

Total Revenue = Total cost

80 X = 650 + 60X
X = 650 / 20 = 32.5 ... minimum customer is 33 persons