Engineering Economy - 20197 Fall 2021 – HW 1

Instructor: Dr. Kermanshah

1. A group of enterprising engineering students has developed a process for extracting

combustible methane gas from cow manure (don’t worry, the exhaust is odorless).
With a specially adapted internal combustion engine, the students claim that an
automobile can be propelled 15 miles per day from the “cow gas” produced by a single
cow. Their experimental car can travel 60 miles per day for an estimated cost of $5 (this
is the allocated cost of the methane process equipment—the cow manure is essentially
free).

a. How many cows would it take to fuel 1,000,000 miles of annual driving by a
fleet of cars? What is the annual cost?

b. How does your answer to Part (a) compare to a gasoline-fueled car averaging
30 miles per gallon when the cost of gasoline is $3.00 per gallon?

2. A bicycle component manufacturer produces hubs for bike wheels. Two processes are
possible for manufacturing, and the parameters of each process are as follows:

Assume that the daily demand for hubs allows all defect-free hubs to be sold.
Additionally, tested or rejected hubs cannot be sold. Find the process that maximizes
profit per day if each part is made from $4 worth of material and can be sold for $30.
Both processes are fully automated, and variable overhead cost is charged at the rate of
$40 per hour.

3. Six years ago, an 80-kW diesel electric set cost $160,000. The cost index for this class
of equipment six years ago was 187 and is now 194. The cost-capacity factor is 0.6.

a. The plant engineering staff is considering a 120-kW unit of the same general
design to power a small isolated plant. Assume we want to add a precompressor,
which (when isolated and estimated separately) currently costs $18,000.
Determine the total cost of the 120-kW unit.

b. Estimate the cost of a 40-kW unit of the same general design. Include the cost
of the $18,000 precompressor.

4. The cost of building a supermarket is related to the total area of the building. Data for
the last 10 supermarkets built for Regork, Ink., are shown in the accompanying table:

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 Engineering Economy - 20197 Fall 2021 – HW 1
Instructor: Dr. Kermanshah

a. Develop a CER for the construction of supermarkets. Use the CER to estimate
the cost of Regork’s next store, which has a planned area of 23,000 square feet.

b. Compute the standard error and correlation coefficient for the CER developed
in Part (a).

5. The vegetable buyer for a group of grocery stores has decided to sell packages of
sprouted grain in the vegetable section of the stores. The product is perishable, and any
remaining unsold after one week in the store is discarded. The supplier will deliver the
packages to the stores, arrange them in the display space, and remove and dispose of
any old packages. The price the supplier will charge the stores depends on the size of
the total weekly order for all the stores.

The vegetable buyer estimates the quantity that can be sold per week, at various selling
prices, as follows:

The sprouted grain will be sold at the same price in all the grocery stores.
a. How many packages should be purchased per week, and at which of the five
prices listed above should they be sold?

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 Engineering Economy - 20197 Fall 2021 – HW 1
Instructor: Dr. Kermanshah

b. Build a spreadsheet to calculate the profit for every combination of selling price
and weekly order size.

6. A firm is planning to manufacture a new product. The sales department estimates that
the quantity that can be sold depends on the selling price. As the selling price is
increased, the quantity that can be sold decreases. Numerically they estimate:

P = $35.00 - 0.02Q
where P = selling price per unit
Q = quantity sold per year

On the other hand, management estimates that the average cost of manufacturing and
selling the product will decrease as the quantity sold increases. They estimate

C = $4.00Q + $8000
where C = cost to produce and sell Q per year

The firm’s management wishes to produce and sell the product at the rate that will
maximize profit, that is, income minus cost will be a maximum. What quantity should
the decision makers plan to produce and sell each year?

7. Ali Ahmadi travels from city to city in the conduct of his business. Every other year he
buys a used car for about $15,000. The dealer allows about $8000 as a trade-in
allowance, with the result that the salesman spends $7000 every other year for a car.
Ali keeps accurate records, which show that all other expenses on his car amount to
32.3c per mile for each mile he drives. Ali’s employer has two plans by which salesmen
are reimbursed for their car expenses:

a. Ali will receive all his operating expenses, and in addition will receive $3500 each
year for the decline in value of the automobile.
b. Ali will receive 52c per mile but no operating expenses and no depreciation
allowance.

If Ali travels 18,000 miles per year, which method of computation gives him the larger
reimbursement? At what annual mileage do the two methods give the same
reimbursement?