Why does anybody do (intentionally or unintentionally) anything wrong/sinful?

Out of IGNORANCE – means anybody is able to capture but does not care.
So, here ignorance means he/she does try to realize the magnitude of rewards awaiting
or gravity of punishment awaiting.

COST CONCEPT AND DESIGN ECONOMICS

Designing product/project/system to see a balance between:
• Economically acceptable, and
• Technically feasible
So, integrate cost concepts, principles of EE and design considerations.

Cost estimation – present and future cost consequences of engineering designs. Project and uniqueness.…
Purposes of cost estimation:
• For determining selling price.
• Determining feasibility of taking a proposed project/product.
• Justification on capital investment for process changes or improvements.
• Benchmarks for productivity improvement programs.

Cost estimation approach

1. Top-down based on historical data from similar projects. Used early in the estimating process to
evaluate alternatives.
2. Bottom-up – in fine detail into small and manageable cost estimates and economic consideration
after a project/product is conceived.
Year-by-year for your study at IUT
• Tuition and other fees
• Books and supplies
• Living expenses
• Transportation
Year Tuition fees, room Book, supplies, and other Total estimated cost
rent, food expenses for year
1
2
3
4
Grand total

Then calculate the total average cost per month, per year, per credit hour, etc.

Fixed, variable, and incremental costs

Fixed costs – unaffected by the volume of product/s or change of activity for a given capacity. General
management salaries, insurance and taxes on facilities, license fees, interest costs on loan.
Variable costs – associated with the volume of production or level of activity. Direct material and direct
labor costs, other directly related resources’ costs. Prime cost.
Incremental costs or revenue - additional cost, or income, that results from increasing the output by one or
more unit/s. “for hiring a new facility at this state”, “increasing the cost producing one more unit”.

Ex. Comparing alternatives

Cost Site A Site B

Production cost $500,000 $500,000
Average hauling distance 6 km 4.3km
Monthly rental of site $1,000 $5,000
Cost to set up and remove equipment $15,000 $25,000
 Hauling Expense $1.15/m3-km $1.15/m3-km

Material required 50,000 m3 and time required 4 months or 17 weeks (5-day week). If site B is selected,
there will be an added charge of $96 per day for a security. Price of material $8.05/m3.
Compare the sites in terms of fixed, variable, and total cost.

Solution:
Cost item Fixed Variable Site A Site B
Rent Y - 4,000 20,000
Setup/removal Y - 15,000 25,000
Hauling - Y 345,000 247,250
Security Y - 8,160
Total 364,000 300,410
6*50,000*1.15 = 364,000. 5*17*96 = 8,160
What would be material quantity for the better site where total revenue equals total cost (in m3)?
Variable cost per m3 for 4.3 km = 4.3*1.15 = 4.95.
Now R = TC
Or, 8.05 x = (20,000 + 25,000 + 8,160) + 4.95x

Recurring and Nonrecurring costs

Recurring costs – repetitive costs (variable costs). Repeatable fixed cost (office space rental).
Nonrecurring costs – not repetitive. Developing capacity to operate (constructing a building).

Direct, indirect, and standard costs

Direct – material, worker or any other directly associated with a product or service.
Indirect – neither fixed or variable. Proportion goes either way based on some formula. Overhead/operating
and other burdens (electricity, repair, property tax, supervision, etc.).
Standard cost – representative costs per unit of output estimated beforehand (advance of production).
Anticipated labor, material and overhead cost.

Cash cost vs book cost

Cash cost and noncash cost – payment of cash, or not cash. Noncash cost is often known as book cost
(recovery of past expenditure over a given period of time). Ex. of book cost is depreciation charge for the
use of an asset.

Sunk cost – occurred in the past and has no relevance to estimates of future costs and revenues related to
alternative course of action. It is common to all alternatives. But is not part of future cash flows, so, not used
in EE.

Opportunity cost
Foregone opportunity (hidden/implied) for a resource being used in an alternative.
Life-cycle cost
Very important. Summation of all costs, both recurring and nonrecurring, related to a product, structure,
system or service during its lifespan.

Cost, volume, and BEP relationships.

BREAK-EVEN ANALYSIS
(or, Cost-Volume-Profit Analysis)

Purpose: To select the potential product/service that commits organization’s resource to

specific production objectives.
Objective of the study of break-even analysis:
For decision making, following information are often available from this analysis:
 (1) Volume at which the output become profitable.
(2) Will the predicted sales volumes for the assumed prices be profitable?
(3) For the known fixed costs, what must the variable costs be to make profit?
(4) For the variable cost given, what must the fixed cost be to make a profit
(5) How will the break-even volume changes as the price increase or decrease?
(6) Which proposal/project/product/service will be more profitable/ viable among
several proposals /projects?
(7) Evaluation of future uncertainty

How?
It is a part of economic analysis on production plans to determine preferred pricing,
servicing, manufacturing and scheduling policies.
Your Proposal: Add new product or expand the existing facility/capacity.
To Analyst:
Additional revenue to be generated by new production capacity > or =additional expected
cost?
Production cost function = f (capacity for a process/ facility)
= f (type & size of equipment to be used, size of the capacity/facility, number and skill of
worker needed, types of raw materials)
An example: large capacity process requires larger and more expensive equipment and larger
facilities than do small capacity process.
Fixed costs of production are larger, but incremental cost for producing additional units
(marginal cost) is smaller than…

What is break-even analysis (BEA)?

Break-even analysis (BEA) can give the answer, which determines the level of output at
which additional revenue equals the additional cost of adding capacity. That is, at what point
will be break even, or when will revenues equal cost? At certain sales volume or demand
level, what revenues will be generated? If we add a new product line, will this action
increase revenue?

What are considered for BEA?

a. Fixed cost- the cost that do not depend / vary with the level (volume/quantity) of
production of certain goods/services. Example: building rent, insurance, property
taxes, depreciation, administrative salaries, capital interests, etc.
b. Variable costs- Costs that vary/depend the level of production. Example: raw
materials costs, production labor costs, direct energy cost, etc.
c. Revenue or return – The income from the selling of products/services.
d. The effect of different volumes of production.
Basics of Analysis:
Using simplified income or profit-and-loss statement which can be written as,
Revenue (price x units sold) = fixed costs + variable costs (var. cost per unit x units) + (-)
profit (loss)
Assumptions:
i. Fixed costs will remain constant irrespective of level of production.
ii. Variable costs will be directly proportional to the volume of production.
iii. The price will remain constant throughout the period.
iv. Units produced by the firm are being sold in the market.

Method of Analysis:
1. Graphical Method: assist communication among decision makers. Easy, because both
cost & revenue are linear relationships called CVP graph.
Steps to draw the graph:
(1) Draw axes (x for quantity/volume and y for money). Be careful about the scale.
(2) Draw F line parallel to x-axis.
(3) Draw variable cost line
(4) Compute TC = F + V
(5) Draw TC line
(6) Compute R and draw the line.
(7) Label the graph. See BEP, profit loss area, angle of incidence, and other
implications.

R Revenue line Profit area

or Total cost line Breakeven point Variable cost line
Cost
Loss Area
------------------------------------------------

Fixed Cost

Volume of production units produced /sold or, capacity (%)

Ex. Fixed cost = RM36,000

Variable cost per unit = RM4
Price of each unit =RM 10
What is the BEP=?
Crossover Chart: Putting several charts together for the different processes that expected to
have different costs, at any given volume of output (only one will have the lowest cost)
TCL
TCL FCL
FCL TCL FCL

Q Q Q

Low Volume, Process-A Repetitive, Process-B High vol. low variety Process-C

$ TCL-A TCL-B TCL-C

FCL-C

FCL-A

Q1 Q2 Volume

AB Ltd. and XY Ltd. anticipate sales turnover amounting to Tk2,500,000, 10% of which is
expected to be profit if each achieves 100% of normal capacity. The variable costs are
Tk1,350,000 for AB Ltd. and Tk2,000,000 for XY Ltd.
Present the necessary details graphically on a single break-even chart, and determine
therefrom the capacity at each of the break-even points:
2. Algebraic method: Support the graph and use to test sensitivity of break-even decisions.
We know,
Revenue = fixed costs + var. costs ± profits/loss
Or, 𝑅 = 𝐹 + 𝑉 ± 𝑃 = 𝐹 + 𝑣. 𝑄 ± 𝑃
Or, 𝑝𝑄 = 𝐹 + 𝑣𝑄 ± 𝑃,
𝐹±𝑃
Or, 𝑄 = where p > v
𝑝−𝑣
At Break-even Point (BEP) where sales amount /volume is just enough to cover the fixed
plus variable cost of operation without either earning profit or suffering a loss.The firm just
breaks even.
That is, at BEP, Z = 0
𝐹
𝑄∗ = ………Break even quantity
𝑝−𝑣
𝐹
BEP ($)𝐵𝐸𝐶 = 𝐵𝐸𝑅∗ = 𝑝𝑄∗ = 𝑝
𝑝−𝑣
Unit contribution = (p - v); total contribution margin = R - V
Unit contribution serves to pay off the fixed cost. When Q exceeds BEP(Q), (p - v) is the
incremental profit expected from each additional unit made and sold.
𝑅−𝑉 𝐹 𝐹
Another way, 𝑅 = 𝐹 + 𝑉 or 𝑅 − 𝑉 = 𝐹 or = or 1 =
𝑅−𝑉 𝑅−𝑉 𝑅−𝑉
𝐹
1 × 𝑅 = 𝑏𝑟𝑒𝑎𝑘 − 𝑒𝑣𝑒𝑛 𝑠𝑎𝑙𝑒𝑠 = × 𝑅, Here R = sales
𝑅−𝑉
𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑃 𝐹
Now = 𝑟𝑎𝑡𝑖𝑜. So, 𝐵𝐸𝑃 = 𝑃
𝑆𝑎𝑙𝑒𝑠/𝑟𝑒𝑣𝑒𝑛𝑢𝑒 𝑉 𝑟𝑎𝑡𝑖𝑜
𝑉

𝑅 = 𝐹 + 𝑉 = 𝐹 + 𝑣. 𝑄 ± 𝑃

Ex. Fixed cost = Tk36,000; variable cost per unit = tk40; and price of each unit = tk100.
What is the BEP =?

Ex. Output = 3,000 units; Selling price per unit = Tk30; Variable cost per unit Tk20, and
Total fixed cost = Tk20,000
𝐹 20,000
𝑄∗ = = = 2,000 𝑢𝑛𝑖𝑡𝑠
𝑝 − 𝑣 30 − 20

Break-even Point as a percentage of estimated capacity:

Break-even point can also be computed as a percentage of the estimated sales or capacity
by dividing the break-even sales by the capacity sales. For example, if a firm has an
estimated capacity to produce 10,000 units of products and its break-even point (Q) is
reached at 4,000 units, then the break-even point is at 40% of capacity.

If information as to total contribution at full capacity is available, the break-even point

as a percentage of estimated capacity can be found as under:
BEP (as % age of capacity) = Fixed Cost/Total Contribution.

Margin of safety = actual or budgeted sales above the BEP.

Margin of safety calculated in percentage is also known as Margin of Safety Ratio and can
be expressed as:
MS Ratio = MS/Sales × 100 = 100 x (Actual Sales – Sales at BEP)/Sales
Margin of safety can also be calculated with the help of the following formula:
Margin of Safety (MS) = Profit/P/V ratio
This is so because margin of safety is the volume of sales beyond break-even point and all
sales above the break-even point give some profit, which can be calculated as: Profit =
Margin of Safety × P/V ratio; or MS = Profit/P/V Ratio

Profit-Volume Graph:
Profit-volume graph is a pictorial representation of the profit-volume relationship. This
graph shows profit and loss at different volumes of sales. It is said to be a simplified form of
break-even chart as it clearly represents the relationship of profit to volume of sales.
A profit-volume graph also called the P/V graph or profit graph can be constructed from any
data relating to a business from which a break-even chart can be drawn.
The profit-volume graph may be preferred to a break-even chart because profits or losses can
be directly read at different levels of activity. But the basic limitation of a P/V graph is that it
does not show how costs vary with the change in the level of activity. For this reason, break-
even chart and profit-volume graph should both be drawn together to derive the maximum
advantage of both.

The construction of a profit-volume graph involves the following steps:

i. Sales line (in volume or value) is drawn on horizontal or x-axis.
ii. Profits and losses are given on vertical or y-axis.
iii. The area above the horizontal of x-axis is called the profit area and the area below the
horizontal axis is the loss area.
iv. Profits and losses at different levels of activity are plotted against corresponding sales and
then these points are joined and extended. This line is called profit line. In case of more than
one product, a separate profit line for each product should be drawn.
v. The point where profit line intersects with the sales line is the break-even point.

Ex: Prepare a P/V graph from the following data:

The following illustration will explain the principles clearly with the help of a profit
chart:
Ex:

Arithmetical Verification:
Sale (in units) = Fixed Expenses + Profit/Contribution per unit
= 150,000 + 87,500/5 = 237,500/5 = 47,500 units
... Sales = 47,500 units @ Tk. 15 = Tk. 7,12,500

Ex.
The following figures relate to one year’s working at 100 per cent capacity level in a
manufacturing business:
Fixed overheads – Tk120,000; variable overheads – Tk200,000; direct wages – Tk150,000;
direct materials – Tk410,000; sales – Tk1,000,000
Represent the above figures on a break-even chart and determine from the chart the break-
even point.
Verify your result by calculations:
Solution:

Arithmetical Verification:

Contribution = Sales – Marginal Cost = Tk10,00,000 – Tk7,60,000 = Tk2,40,000

P/V Ratio = Contribution/Sales. Then 2,40,000/10,00,000 = 24/100 or 24%.
Break-Even Point = Fixed Expenses/P/V Ratio
= 1,20,000/24/100 = 1,20,000 × 100/24 = Tk. 5,00,000

At Tk. 10,00,000 sales, 100% capacity is reached

... At Tk. 5,00,000 sales, 50% capacity is reached
Hence, break-even point is reached at a 50% capacity utilization.
Sensitivity analysis
F = 2,400,000 + 220,000 + 30,000 p = 4 + 5 + 15 = 24;
v = 2 + 9 = 11. Find BEP.
If Q = 200,000, find v.
If Q = 200,000, p = 24, v = 11, find F.
If Q = 200,000, F = 2,650,000, v = 11, and concession in price is 10%. Find the gate price.

Multiproduct/composite break-even Case:

You know, most firms have a variety of offerings. Each offering may have different selling
price and variable cost. Now, to reflect the proportion of sales for each product, we use
weighting of each product’s contribution by its proportion of sales. That is,𝐵𝐸𝑃(𝐵𝐷𝑇/𝑅𝑀/
𝐹
𝑈𝑆𝐷) = 𝑣𝑖
∑(1− )𝑤𝑖
𝑝𝑖
Where, 𝑣𝑖 = var. cost per unit of product i
𝑝𝑖 = price (per unit) of product i
wi= percent each product is of the total sales.

Ex. Fixed cost = 3500 per month. Other data are as follow:
Item(i) (1) Price (p) (2) Cost (v) (3) Forecasted units sales
(4)
Sandwich 2.95 1.25 7,000
Soft drink 0.80 0.30 7,000
Baked potato 1.55 0.47 5,000
Tea 0.75 0.25 5,000
Salad bar 2.85 1.00 3,000
Solution:
𝐹
𝐵𝐸𝑃(𝑅𝑀) = 𝑣
∑ (1 − 𝑖 ) 𝑤𝑖
𝑝 𝑖
v/p (5) 1- v/p (6) Forecasted sales Proportion of Weightedvalue
value (7) = sales (9) = (6)x(8)
(2)x(4) (8)=(7)/46,300
.42 .58 20,650 0.446 0.259
.38 .62 5,600 0.121 0.075
.30 .70 7,750 0.167 0.117
.33 .67 3,750 0.081 0.054
.35 .65 8,550 0.185 0.120
46,300 1.000 0.625
𝐹 3500/𝑚𝑜𝑛𝑡ℎ×12𝑚𝑜𝑛𝑡ℎ𝑠/𝑦𝑒𝑎𝑟
So, 𝐵𝐸𝑃(𝑅𝑀) = 𝑣𝑖 = = 67,200
∑(1− )𝑤𝑖 0.625
𝑝
𝑖
Total daily sales = 67200/52×6 = 215.38
So, manager gets information what must be sold each day.
Make-or-buy Decision (Evaluating Processes)
Buy Make
𝐹𝑏 + 𝑐𝑏 𝑄 = 𝐹𝑚 + 𝑐𝑚 𝑄
Q= (𝐹𝑏 − 𝐹𝑚)/(𝑐𝑏 − 𝑐𝑚)
Break point quantity Buy

Make

Fm
Fb

Quantity(Q)

Other factors (quantitative and qualitative)

1. Idle plant capability
2. In house capabilities (personal, future capabilities)
3. Reliability of supply
4. Reciprocity
5. Employment stabilization
6. All resources use,
7. Economic advantage

Make-or-Buy Decision

Buy Make
Fixed costs $0 $300,000
Variable costs $9 $7
$300,000 − $0
𝑄=
$9 − $7
=150,000 patrons

Two Process choices

Labor Intensive Capital Intensive

(Option 2) (Option 1)
 𝐹1 + 𝑐1𝑄 = 𝐹2 + 𝑐2𝑄
𝐹2−𝐹1
𝑄=
𝑐1−𝑐2
Option1
Option2

Quantity (Q)

Nonlinear Relationships
Total revenue function
Total cost line or total revenue line cannot be linear in most practical cases. Therefore, you
have to use differential (calculus) method to determine stops for revenue, cost, or profit.
Have to use differential (calculus) method to determine stops for revenue, cost, or profit.

RL TCL VCL Cost

Q production rate

Revenue during a given period,

𝑅 = 𝑝𝑟𝑖𝑐𝑒 𝑥 𝑑𝑒𝑚𝑎𝑛𝑑 =𝑝. 𝑄
= (𝑎 − 𝑏𝑄)𝑄 = 𝑎𝑄 − 𝑏𝑄2 𝑓𝑜𝑟 0 ≤ 𝑄 ≤ 𝑎/𝑏 𝑎𝑛𝑑 𝑎 > 0 𝑏>0
Were a andb are constants, where a is the intercept and –b is slope.
To maximize the R, we need to know the estimated optimal demand. Differentiate and find
it. Draw the curve. Do we need to check maximizing R? How?
When R is according to
𝑅 = 𝑝𝑟𝑖𝑐𝑒 𝑥 𝑑𝑒𝑚𝑎𝑛𝑑 =𝑝. 𝑄
= (𝑎 − 𝑏𝑄)𝑄 = 𝑎𝑄 − 𝑏𝑄2 𝑓𝑜𝑟 0 ≤ 𝑄 ≤ 𝑎/𝑏 𝑎𝑛𝑑 𝑎 > 0 𝑏>0
And 𝑇𝐶 = 𝐹 + 𝑉 = 𝐹 + 𝑣. 𝑄
At BEP, 𝑎𝑄 − 𝑏𝑄2 = 𝐹 + 𝑣𝑄, then
−(𝑎−𝑣)±[(𝑎−𝑣)2 −4(−𝑏)(−𝐹)]1/2
BEQ is 𝑄 ∗
2(−𝑏)
𝑍 = 𝑅 − 𝑇𝐶 = (𝑎𝑄 − 𝑏𝑄2 ) − (𝐹 + 𝑣𝑄) = −𝑏𝑄2 + (𝑎 − 𝑣)𝑄 − 𝐹
For a profit, two conditions:
• (𝑎 − 𝑣) > 0
• 𝑅 > 𝑇𝐶
 So, optimal demand
𝑑𝑍
= 𝑎 − 𝑣 − 2𝑏𝑄 = 0
𝑑𝑄
To make sure that profit is maximized, find the second derivatives. …

Ex.
Linear relationships Nonlinear relationships
F = 200,000, p = 100-0.001Ø, R = 100Ø-0.001Ø2
p = 100/unit, R = 100Ø, v = 20/units TC = 0.005Ø2 + 4Ø + 200,000
TC = 20Ø + 200,000
Solution: Z = R – TC = 0
For BEP(Q), Z = R – TC = 0 100Ø-0.001Ø2 - 0.005Ø2 - 4Ø - 200,000
Q* = BEP(Q) = 2500 units = 0, So, Q* = BEP(Q) = 2462 units
Ø for max. Profit : Marginal profit = d(z)/dØ
Marginal profit = Contribution / units Qmaxoccurs at d(Z)/dØ = 0,
= p – v = 80/unit So, Q = 8,000 units
Total contribution is increasing linearly
with respect to Q.
Max Z occurs at Qmax = 10,000 (say it is
the full capacity of the plant)
Q for min. average cost (AC) AC = TC/Q = 0.005Ø + 4 + 200000/Ø
AC = TC/Ø = 20 + 200000/Ø AC is min at d(AC)/dØ = 0
AC is min at Qmax. So, Q = 6,325 units
Ø = 10,000
Ø = 6325

Probability Distribution on Demand:

Assumptions:
1. Demand is normally distributed
2. Demand is the only random variable

To find the probability of breaking even,

P (loss) =P (demand <breakeven) =? 24.51%
P (profit) =P (demand>breakeven) =? 75.49%

15% change demand is less than 5,000 (2)𝜎 = Std. deviation describes spread
15% chance demands exceed 11,000

What is the value of sigma?

Z= (demand-𝜇) /𝜎
Z= no. of standard deviation
For the demand of 11,000 (85% chance) from table you can get the value of
Z ≈1.04
Or, 1.04=11000-8000/𝜎
Or, 𝜎=2855units
What is the probability of =6000-8000/2855=-0.69
 The area under the curve of -0.69=1-0.7549=24.5%
So, chance of making profit is 75.49%

Taylor’s Equation in manufacturing/machining a part. Variable cost for metal cutting

operation has four components:
• Cost of labor and the machine while the machine is cutting
• Cost of tool
• Cost of machine and labor while sharp tools are mounted, and
• Cost of labor and machine while the work piece is being loaded and unloaded.
𝑡 𝑡
𝑣𝑎𝑟 𝑖 𝑎𝑏𝑙𝑒 𝑐𝑜𝑠 𝑡 = 𝑡𝑐 ∗ 𝑠𝑙,𝑚 + 𝑠𝑡 ∗ 𝑐 + 𝑡𝑑𝑡 ∗ 𝑠𝑙,𝑚 ∗ 𝑐 + 𝑠𝑙,𝑚 ∗ 𝑡𝑑𝑤 + 𝑠𝑙,𝑚 ∗ 𝑡𝑎
𝑡 𝑡
Where, tc = cutting time/part (min); t = tool life (time a tool can cut before dulling) (min);
sl,m = cost (RM/min) of running machine including labor cost; tdt = time (min) it takes to put
a sharp tool on the machine (downtime for tool change); s t= cost of one sharp tool; tdw = time
(min) to load/unload one work piece (downtime for work piece change), and; t a = time (min)
to adjust or position tool for each work piece.
Cost id function of process parameters selected for the operation. F. W. Taylor (father of
Industrial Engineering) developed a relationship of cutting speed and tool life. To reduce the
processing time, you have to increase cutting speed. But higher cutting speed increases tool
wears. So, there is a need to determine the optimum cutting speed at which a cutting toll is
operated and the life of tool is considered. Taylor’s tool life equation is:
𝐶 = 𝑣𝑡 𝑛
Where, C = cutting speed (ft/min) at which the toll dull after one minute of use; v = cutting
speed (ft/min) at which the process will be operated; t = tool life (min) that can be expected
when the tool is operated at cutting speed, and; n = a constant that is dependent on the
material being cut and the cutting tool material.
𝐶 1/𝑛
Now, length of the cut in a work piece 𝑙 = 𝑣𝑡𝑐 . Therefore, 𝑡 = ( )
𝑣
𝑙 𝑙 𝑐 −1/𝑛 𝑙 𝑐 −1/𝑛
𝑣𝑎𝑟 𝑖 𝑎𝑏𝑙𝑒 𝑐𝑜𝑠 𝑡 /𝑝𝑎𝑟𝑡 = ∗ 𝑠𝑙,𝑚 + 𝑠𝑡 ∗ ∗ ( ) + 𝑡𝑑𝑡 ∗ 𝑠𝑙,𝑚 ∗ ∗ ( ) + 𝑠𝑙,𝑚 ∗
𝑣 𝑣 𝑣 𝑣 𝑣
𝑡𝑑𝑤 + 𝑠𝑙,𝑚 ∗ 𝑡𝑎 Cutting speed, v, is the only variable. For minimization of the variable cost,
differential the equation with respect to v and solve for optimal v that minimizes the cost of
cutting.
𝑛
𝑛 𝑛 𝑠𝑙,𝑚
𝑣 =𝐶( ) ( )
1−𝑛 𝑠𝑙,𝑚 𝑡𝑑𝑡 + 𝑠𝑡
Ex. A 2 ft section of a 3-in diameter 1020 steel part is to be machined using a high-speed
steel tool. Take that C = 225 ft/min; sl,m = RM4/min, st = RM16, n = 0.105, tdt = 3 min, tdw =
1 min, ta = 2 min, and the feed rate of 0.05 in/rev. The fixed cost for this operation is
assumed to RM5,000. If the price of a unit of the product is RM12, what will be the break-
even quantity?