FACULTY OF ENGINEERING TECHNOLOGY, UTHM

SUBJECT : ENGINEERING ECONOMY (BNP 30402)

CHAPTER : CHAPTER 2 (PART 2) – TUTORIAL 2
INSTRUCTIONS:
1. Answer all the questions clearly with a pen. Write down the number of exercises
clearly before answering the question.
2. On the first page of your answer sheet, write down your name, matric number, section
AND insert your matric card on top of the page.
3. Scan your documents clearly using a scanner app that can be downloaded from your
mobile Appstore. Taking pictures of your documents using your mobile camera and
convert them into pdf formats are NOT ALLOWED.
4. Please name your file “MATRIC NO_TUTORIAL 2” in capital letters. E.g.,
AN12345_TUTORIAL 2.
5. You are required to submit your TUTORIAL 2 latest by 17.4.2021 (Saturday) before 5
p.m. You will be given 0 for attendance and considered as “did not attend class” for
late submission.
6. All the best.

Exercise 1
You and your friends are planning to fly to Germany for a vacation. For international travel,
you apply for a passport that costs RM300 that valid for 3 years. After receiving your passport,
you friends decided to cancel the trip due to “insufficient funds”. You decide to also cancel
your travel plans as travelling alone is no fun.
(i) Is your passport expense a sunk cost or opportunity cost?
The passport expense is a sunk cost.
(2 marks)
(ii) Explain your answer in (i).
This is because I could not get my money back after I received the passport. If
I decide to go for a trip at a later date, the passport’s cost becomes part of the
fixed costs of the trip.
(3 marks)
 FACULTY OF ENGINEERING TECHNOLOGY, UTHM

Exercise 2
Harith has made a windfall gain of RM50,000. He has come up with three options of investing
the money. First, he could buy a house in a nice neighborhood. Second, he could invest the
money in stocks and shares, which are expected to increase in value by 30% per year. This,
however, is a risky option. Third, he could put his money into a fixed deposit arrangement
with a bank and earn 8.5% per year. There is little risk involved in taking the third option.
(i) If Harith decides to purchase a house, what is the opportunity cost of this choice?
Explain your reasoning.
The opportunity cost is 30% per year. This is because if Harith were to cover the
risk of investing his money in the stock market, he would gain 30% per year.
(5 marks)
(ii) If Harith invests in the stock market, what is the opportunity cost of this choice?
Explain your reasoning.
The opportunity cost is 8.5% per year. This is because as a result of covering the
risk in the stock market, Harith may lose 8.5% per year which would certainly be a
profit if he used the fixed deposit option instead.
(5 marks)

Exercise 3
By referring to the notes given and other reference materials:

(i) Explain the concept of the life cycle cost.

The life cycle cost concept encompasses a time horizon for a product, structure,
system or service from the initial needs assessment to final phase out and disposal
activities.
(3 marks)
(ii) Elaborate in detail why is the potential for achieving life cycle cost savings greatest
in the acquisition phase of the life cycle?
The acquisition phase includes the definition of requirements as well as the
conceptual and detailed design activities. It is during these activities that the
 FACULTY OF ENGINEERING TECHNOLOGY, UTHM

future costs to produce (or construct), operate, and maintain a product, structure
system, or service are predetermined. Since these future costs (during the
operation phase) are 80-90% of the life cycle costs, the greatest potential of
lowering life cycle costs is during the acquisition phase (in the definition of
requirements and design activities).
(5 marks)
(iii) List the references that you used to answer Exercise 3.
Marks will be given for the authenticity of the materials used
(2 marks)