Environmental Engineering
For full credit please show all your work and explain your answers
1. Identify which of the following costs are fixed and which are variable. Give one sentence
explanation why.
a. Wages paid to temporary workers
b. Property taxes on factory building
c. Property taxes on administrative building
d. Sales commission
e. Electricity for machinery and equipment in the plant
f. Heat and air-conditioning for the plant
g. Salaries paid to design engineers
h. Regular maintenance on machinery and equipment
i. Basic raw materials used in production
j. Factory fire insurance
2. BR & ST Company manufactures a specialized motor for chain saws. The company expects
to manufacture and sell 30,000 motors in year 2005. It can manufacture and additional
10,000 motors without adding new machinery and equipment. Its projected total costs for the
30,000 units are as follow:
Direct materials
Direct labor
Manufacturing overhead:
Variable portion
Fixed portion
Selling and Administrative costs:
Variable portion
Fixed portion
$150,000
300,000
100,000
80,000
180,000
70,000
The selling price for the motor is $80.
a. What is the total manufacturing cost per unit if 30,000 motors are produced?
b. What is the total manufacturing cost per unit if 40,000 motors are produced (state your
assumptions)?
c. What is the break-even price on the motors for an output of 30,000 units?
3. Sandstone Corporation has one of its manufacturing plants operating on a single shift 5-day
week. The plant is operating at its full capacity (24,000 units of output per week) without the
use of overtime or extra-shift operation. Fixed costs for single-shift operation amount to
$90,000 per week. The average variable cost is a constant $30 per unit, at all output rates, up
to 24,000 units per week. The company has received an order to produce extra units per week
beyond the current single-shift maximum capacity. Two options are being considered to fill
the new order.
Option 1: Increase the plant’s output (with max output 36,000 units a week) by adding
overtime or by adding Saturday operations or both. No increase in fixed costs is entailed,
but the variable cost is $36 per unit for any output in excess of 24,000 units per week, up
to a 36,000-unit capacity.
Option 2: Operate a second shift. The maximum capacity of the second shift is 21,000
units per week. The variable cost on the second shift is $31.50 per unit, and operation of a
second shift has additional fixed costs of $13,500 per week.
a. If the additional demand is 4,000 units which option will you choose?
b. If the exact additional demand is not known determine the range of operating output that
makes Option 2 the preferred option.
4. A public traded construction company reported that it just paid off a loan that it received 1
year earlier. If the total amount the company paid was $1.6 million and the interest rate on
the loan was 12% per year, how much money had the company borrowed 1year ago?
5. At an interest rate of 10% per year, $10,000 today is equivalent to how much (a) 1 year from
now and (b) 1 year ago?
6. Calculate the net cash flow for each month for the following cash flows on a loan from two
perspectives: (a) the borrower and (b) the bank.
MONTH Amount of Money Purpose
January
$1000
Borrowed $1000 for 6 months from bank
February 100
Paid interest on loan balance to bank
March
100
Paid interest on load balance to bank
April
100
Paid interest on load balance to bank
April
500
Borrowed an additional $500 for 3 months
May
150
Paid interest on both loan balances to bank
June
150
Paid interest on both loan balances to bank
July
150
Paid interest on both loan balances to bank
July
1500
Repaid principal on both loans to bank