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Questions and Answers
Which principle of engineering economy emphasizes the importance of understanding the differences between potential outcomes of various alternatives?
Which principle of engineering economy emphasizes the importance of understanding the differences between potential outcomes of various alternatives?
- Develop the Alternatives
- Focus on the Differences (correct)
- Use a Consistent Viewpoint
- Use a Common Unit of Measure
According to the principles of engineering economy, how does the concept of 'risk and uncertainty' influence the analysis of alternatives?
According to the principles of engineering economy, how does the concept of 'risk and uncertainty' influence the analysis of alternatives?
- Risk and uncertainty are irrelevant in the comparison of alternatives.
- Risk and uncertainty should be explicitly recognized and addressed in the analysis. (correct)
- 风险和不确定性是评估潜在结果的关键，但无法量化。
- Risk and uncertainty should be completely eliminated from the analysis.
What does Principle No. 7 suggest regarding decision-making in engineering economy?
What does Principle No. 7 suggest regarding decision-making in engineering economy?
- Decision-making should be based solely on initial projections, without any subsequent adjustments
- Decisions should be made once and remain unchanged.
- Decisions should be revisited and adjusted based on actual results achieved. (correct)
- The initial decision should be considered final, regardless of future outcomes.
Which principle is MOST closely associated with the concept of 'cost-benefit analysis' in engineering economy?
Which principle is MOST closely associated with the concept of 'cost-benefit analysis' in engineering economy?
When evaluating engineering solutions, what does the principle 'Use a Common Unit of Measure' recommend?
When evaluating engineering solutions, what does the principle 'Use a Common Unit of Measure' recommend?
Which situation best exemplifies the application of the 'Develop the Alternatives' principle in engineering economy?
Which situation best exemplifies the application of the 'Develop the Alternatives' principle in engineering economy?
Why is it essential to 'Make Risk and Uncertainty Explicit' when comparing alternatives in engineering economy?
Why is it essential to 'Make Risk and Uncertainty Explicit' when comparing alternatives in engineering economy?
What is the most practical way to ensure that decisions in engineering economy are revisited and adjusted based on actual results?
What is the most practical way to ensure that decisions in engineering economy are revisited and adjusted based on actual results?
Which principle directly supports the idea of considering the environmental impact of engineering solutions in the decision-making process?
Which principle directly supports the idea of considering the environmental impact of engineering solutions in the decision-making process?
Which of the following best describes the purpose of engineering economy?
Which of the following best describes the purpose of engineering economy?
Which of the following is NOT a characteristic of fixed costs?
Which of the following is NOT a characteristic of fixed costs?
What is the primary difference between direct costs and indirect costs?
What is the primary difference between direct costs and indirect costs?
What is the time value of money?
What is the time value of money?
Which of the following is NOT a characteristic of intangible factors?
Which of the following is NOT a characteristic of intangible factors?
Why is the 'do-nothing' alternative significant in alternative selection?
Why is the 'do-nothing' alternative significant in alternative selection?
Which of the following would be considered a variable cost in a manufacturing environment?
Which of the following would be considered a variable cost in a manufacturing environment?
What is the primary goal when selecting an alternative?
What is the primary goal when selecting an alternative?
Which of the following best describes the concept of cash flow?
Which of the following best describes the concept of cash flow?
Which of the following is an example of a noneconomic or intangible factor in decision-making?
Which of the following is an example of a noneconomic or intangible factor in decision-making?
In the context of present economy studies, when comparing alternatives for accomplishing a task over a year or less, which factor can be disregarded?
In the context of present economy studies, when comparing alternatives for accomplishing a task over a year or less, which factor can be disregarded?
Which of the following is NOT a primary resource area for the operation phase of a project?
Which of the following is NOT a primary resource area for the operation phase of a project?
Which type of competition exists when a single vendor controls the market for a unique product or service, preventing any other suppliers from entering?
Which type of competition exists when a single vendor controls the market for a unique product or service, preventing any other suppliers from entering?
Which of the following is an example of a producer good?
Which of the following is an example of a producer good?
When comparing alternatives in a present economy study where revenues and other economic benefits are present and vary, which of the following rules applies?
When comparing alternatives in a present economy study where revenues and other economic benefits are present and vary, which of the following rules applies?
Which of the following is a characteristic of perfect competition?
Which of the following is a characteristic of perfect competition?
What is the relationship between price and demand in general terms?
What is the relationship between price and demand in general terms?
Which of the following is NOT included in the disposal cost?
Which of the following is NOT included in the disposal cost?
Which of the following is considered a consumer good?
Which of the following is considered a consumer good?
In present economy studies, when comparing alternatives where revenues and benefits are NOT present or are constant, which rule dictates the selection?
In present economy studies, when comparing alternatives where revenues and benefits are NOT present or are constant, which rule dictates the selection?
A company is considering purchasing a new piece of equipment. The equipment will cost $100,000 and is expected to last for 10 years. The company also anticipates spending $10,000 per year on maintenance. What is the total life-cycle cost of the equipment?
A company is considering purchasing a new piece of equipment. The equipment will cost $100,000 and is expected to last for 10 years. The company also anticipates spending $10,000 per year on maintenance. What is the total life-cycle cost of the equipment?
A company is deciding between two different manufacturing processes. Process A has a fixed cost of $100,000 and a variable cost of $10 per unit. Process B has a fixed cost of $50,000 and a variable cost of $20 per unit. What is the incremental cost of producing 10,000 units using Process B instead of Process A?
A company is deciding between two different manufacturing processes. Process A has a fixed cost of $100,000 and a variable cost of $10 per unit. Process B has a fixed cost of $50,000 and a variable cost of $20 per unit. What is the incremental cost of producing 10,000 units using Process B instead of Process A?
A company has already spent $1 million developing a new product. The company is now considering whether to proceed with production. If the company proceeds, it will incur an additional $500,000 in production costs. If the company does not proceed, it will lose the $1 million already invested. Which of the following costs is considered a sunk cost in this decision?
A company has already spent $1 million developing a new product. The company is now considering whether to proceed with production. If the company proceeds, it will incur an additional $500,000 in production costs. If the company does not proceed, it will lose the $1 million already invested. Which of the following costs is considered a sunk cost in this decision?
A farmer is considering planting either corn or soybeans on his land. The expected profit from corn is $100 per acre, while the expected profit from soybeans is $75 per acre. Which of the following represents the opportunity cost of planting corn?
A farmer is considering planting either corn or soybeans on his land. The expected profit from corn is $100 per acre, while the expected profit from soybeans is $75 per acre. Which of the following represents the opportunity cost of planting corn?
A company is planning to purchase a new piece of manufacturing equipment. The equipment will cost $1 million and is expected to have a useful life of 10 years. During the first 5 years of operation, the equipment is expected to generate $500,000 in annual revenue. During the remaining 5 years, the annual revenue is expected to decline to $250,000. Which of the following components is NOT included in the life-cycle cost of the equipment?
A company is planning to purchase a new piece of manufacturing equipment. The equipment will cost $1 million and is expected to have a useful life of 10 years. During the first 5 years of operation, the equipment is expected to generate $500,000 in annual revenue. During the remaining 5 years, the annual revenue is expected to decline to $250,000. Which of the following components is NOT included in the life-cycle cost of the equipment?
A company is considering two different software packages. Software A costs $10,000 and requires $1,000 in annual maintenance fees. Software B costs $5,000 and requires $2,000 in annual maintenance fees. Both softwares are expected to last for 5 years. What is the total operation and maintenance cost (O&M) of Software A over its lifetime?
A company is considering two different software packages. Software A costs $10,000 and requires $1,000 in annual maintenance fees. Software B costs $5,000 and requires $2,000 in annual maintenance fees. Both softwares are expected to last for 5 years. What is the total operation and maintenance cost (O&M) of Software A over its lifetime?
A company is considering building a new factory. The factory will cost $10 million to build. The company estimates that the factory will generate $2 million in annual profit for 10 years. After 10 years, the factory will be demolished and the land sold for $1 million. What is the net investment cost of the factory?
A company is considering building a new factory. The factory will cost $10 million to build. The company estimates that the factory will generate $2 million in annual profit for 10 years. After 10 years, the factory will be demolished and the land sold for $1 million. What is the net investment cost of the factory?
A company is considering purchasing a new truck. The truck will cost $50,000 and is expected to last for 5 years. The company estimates that the truck will generate $15,000 in annual revenue. What is the payback period of the truck?
A company is considering purchasing a new truck. The truck will cost $50,000 and is expected to last for 5 years. The company estimates that the truck will generate $15,000 in annual revenue. What is the payback period of the truck?
A company is considering two different investments. Investment A has a projected return on investment (ROI) of 15%. Investment B has a projected ROI of 10%. Which investment has the higher opportunity cost if the company chooses the other investment?
A company is considering two different investments. Investment A has a projected return on investment (ROI) of 15%. Investment B has a projected ROI of 10%. Which investment has the higher opportunity cost if the company chooses the other investment?
A company is considering launching a new product. The company has already spent $1 million on research and development. The company estimates that it will cost an additional $5 million to launch the product. The company forecasts that the product will generate $10 million in revenue over its lifetime. What is the opportunity cost of launching the product, assuming the company could invest the $6 million in other projects with a 10% annual return?
A company is considering launching a new product. The company has already spent $1 million on research and development. The company estimates that it will cost an additional $5 million to launch the product. The company forecasts that the product will generate $10 million in revenue over its lifetime. What is the opportunity cost of launching the product, assuming the company could invest the $6 million in other projects with a 10% annual return?
Flashcards
Engineering Economy
Engineering Economy
The evaluation of economic merits of engineering solutions.
Alternatives
Alternatives
Stand-alone solutions considered for evaluation.
Purchase Cost
Purchase Cost
The initial cost to acquire an asset.
Anticipated Useful Life
Anticipated Useful Life
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Annual Maintenance Costs
Annual Maintenance Costs
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Salvage Value
Salvage Value
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Focus on Differences
Focus on Differences
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Common Unit of Measure
Common Unit of Measure
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Risk and Uncertainty
Risk and Uncertainty
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Revisit Your Decisions
Revisit Your Decisions
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Cash Flow
Cash Flow
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Do-Nothing Alternative
Do-Nothing Alternative
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Evaluation Criteria
Evaluation Criteria
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Intangible Factors
Intangible Factors
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Time Value of Money
Time Value of Money
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Fixed Costs
Fixed Costs
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Variable Costs
Variable Costs
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Direct Costs
Direct Costs
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Indirect Costs
Indirect Costs
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Alternative Selection
Alternative Selection
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Incremental Cost
Incremental Cost
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Standard Costs
Standard Costs
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Cash Cost
Cash Cost
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Book Cost
Book Cost
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Sunk Costs
Sunk Costs
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Opportunity Cost
Opportunity Cost
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Life-Cycle Cost
Life-Cycle Cost
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Acquisition Phase
Acquisition Phase
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Investment Cost
Investment Cost
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Operation and Maintenance Cost (O&M)
Operation and Maintenance Cost (O&M)
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Operational Resource Areas
Operational Resource Areas
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Disposal Cost
Disposal Cost
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Consumer Goods
Consumer Goods
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Producer Goods
Producer Goods
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Price-Demand Relationship
Price-Demand Relationship
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Perfect Competition
Perfect Competition
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Monopoly
Monopoly
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Present Economy Studies
Present Economy Studies
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Rule No. 1 of Economic Analysis
Rule No. 1 of Economic Analysis
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Rule No. 2 of Economic Analysis
Rule No. 2 of Economic Analysis
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Study Notes
Engineering Economics
- Engineering economy systematically evaluates the economic viability of proposed solutions to engineering problems.
- Solutions must demonstrate a positive balance of long-term benefits over long-term costs to be acceptable (affordable).
- Engineering economy uses techniques to simplify comparisons of alternatives.
Alternatives
- An alternative is a self-contained solution to a given situation.
- Engineering considerations involve factors such as purchase cost, useful life, maintenance costs, resale value (salvage value), and interest rate.
Principles of Engineering Economy
- Develop Alternatives: Clearly define the problem, and identify different potential solutions.
- Focus on Differences: Only the differences in projected outcomes among alternatives are relevant for comparison.
- Consistent Viewpoint: All outcomes (economic and otherwise) should be evaluated from a consistent perspective.
- Common Unit of Measure: Use a common unit to measure potential outcomes for easier analysis.
- All Relevant Criteria: Consider all relevant factors in selection criteria, including monetary and non-monetary factors.
- Explicit Risk & Uncertainty: Acknowledge inherent risk/uncertainty when estimating outcomes for alternatives.
- Revisit Decisions: Review and adjust the analysis as new information becomes available.
Cash Flow
- Cash flow includes estimated inflows (revenues) and outflows (costs) of money.
- Every situation has at least two alternatives: a solution and inaction (do-nothing alternative), often associated with the status quo.
Evaluation Criteria
- Financial units (dollars, currency) are the common basis for evaluating alternatives.
- The best alternative is usually the one with the lowest cost or highest profit.
Intangible Factors
- Non-economic or intangible factors that are difficult to quantify may sometimes tilt the decision between alternatives.
- Examples include goodwill, convenience, and morale.
Time Value of Money
- The change in the amount of money over a period of time is crucial.
- It's a key concept in engineering economics.
Cost Terminology and Concepts
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Fixed Costs: Remain unaffected by changes in activity level (within the feasible range).
- Examples: Insurance, taxes, general management salaries, license fees, interest on borrowed capital.
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Variable Costs: Vary with the level of output.
- Examples: Material costs, labor costs, advertising costs.
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Direct Costs: Easily traced to a specific output or activity.
- Examples: Materials used in a product, labor costs directly associated with a product or project.
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Indirect Costs: Difficult to trace to a specific output or activity.
- Examples: General supplies, common tools, equipment maintenance.
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Incremental Costs: Additional costs or revenues from increasing output.
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Standard Costs: Planned costs per unit of output, established in advance of actual production.
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Cash Costs: Costs that involve paying cash immediately.
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Book Costs: Costs that do not involve immediate cash payments, recovery of past expenditures.
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Sunk Costs: Costs already incurred and cannot be recovered. Irrelevant for decision-making.
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Opportunity Cost: Value of the best alternative use of a resource.
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Life-Cycle Cost: Total cost of a product, structure, or service throughout its entire life, from acquisition to disposal.
- Divided into acquisition and operation phases.
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Investment Cost: Capital required during the acquisition phase. Often a series of expenditures over time for large projects.
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Operation and Maintenance (O&M) Cost: Recurring costs associated with the operation phase. Examples include personnel, equipment, materials, energy, and information.
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Disposal Costs: Non-recurring costs associated with shutting down operations and retiring assets at the end of the life cycle.
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Consumer Goods/Services: Products or services directly used by consumers.
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Producer Goods/Services: Goods or services used to produce other goods or services (e.g., machine tools, farm machinery).
Relationship Between Price and Demand
- As price increases, demand decreases, and as price decreases, demand increases.
Economic Competition
- Perfect Competition: A market with many vendors, no restrictions on new entrants, and no control over pricing.
- Monopoly: A market with a single supplier able to prevent entry of others.
Present Economy Studies
- Studies over a short timeframe (usually one year or less) where the effect of time on money is negligible.
- Focus on profitability (number of units) or minimizing cost per defect-free unit for relevant criteria.
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Description
This quiz delves into the principles and techniques of Engineering Economy, evaluating the economic viability of engineering solutions. Learn about the importance of developing alternatives, focusing on differences, and utilizing a common unit of measure for comparisons.
