Mansoura University 2nd Year Prod.

Engineering

Faculty of Engineering Final Exam – Jan 2015

Prod. Eng. & Mech. Design Dept. Marks: 50 Time: 2 hours Engineering Management 1

Attempt All Questions. Equal marks for each equation.

Question 1: Explain the beak–even concept; using Break–even chart as a useful technique for
showing the relationship between costs, volume, and profit. Also, discuss the effect on profit of
changes (increase and decrease) in the following:

a) Selling price. c) Total fixed cost.

b) Unit variable cost. d) Volume.

[Sketch your answer for each case]

Question 2: Ice Cream Company operates a chain of drive–ins selling only ice–cream
products. The company is considering opening a new drive–in stand at a desirable location.
The following data pertain to the typical stand:

Average selling price per gallon of ice cream $2.56

Variable costs per gallon:

Ice cream $1.34
Supplies (cups, cones, toppings, etc.) 0.58
Total Unit Variable Costs $1.92

Fixed costs per month:

Rent $400
Utilities 120
Wages (including faring costs) of employees 1330
Manager’s base salary 440
Other fixed costs 150
Total Fixed Costs $2400

Required:
Develop the basis for a decision to open a new drive–in. consider each of the following
separately, based on the above data:

a) What is the monthly break–even point, expresses on both gallons of ice cream and in
dollars of sales?
b) If the rent were increased to $1,200 per month, what would be the new break–even
point in dollars and gallons?
c) If the cost of ice cream increased to $1.66 per gallon, what would be the new break–
even point in dollars and gallons?
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Question 3:

a) Give a full comparison for the depreciation accounting methods.

b) Assume you are looking for a building in which to locate your professional office, and
one is available for $50,000. The appraisal is divided into $10,000 for the land and $40,000
for the building. The building is new and can be depreciated over a 20–year period at 1.5
declining balance method. Salvage value after 20 years is $20,000 for the building.

i. In your first year of ownership, how much can you deduct for depreciation?
ii. How much in the second year?
iii. How much in the twentieth year?

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