Chemical Engineering Plant Economics B. Product distribution.

Section 1. C. Opportunities
1. Direct costs component of the fixed capital consists of D. Economics
A. contingencies
B. onsite and offsite costs 10. __________ of depreciation calculation accounts for the
C. labour costs interest on investment.
D. raw material costs A. Straight line method
2. Out of the following, the depreciation calculated by the B. Declining balance
__________ method is the maximum. C. both (a) and (b)
A. diminishing balance D. neither (a) nor (b).
B. straight line 11. Which of the following is not a component of working
C. sum of the years digit capital ?
D. sinking fund A. Raw materials is stock.
3. The ratio of working capital to total capital investment for B. Finished products in stock.
most chemical plants (except for non-seasonal based C. Transportation facilities.
products) is in the range of __________ percent. D. Semi-finished products in the process.
A. 0.1 to 1 12. In declining balance method of depreciation calculation,
B. 1 to 2 the ______________.
C. 10 to 20 A. value of the asset decreases linearly with time.
D. 50 to 60 B. annual cost of depreciation is same every year.
4. Utilities cost in the operation of chemical process plant C. annual depreciation is the fixed percentage of the
comes under the property value at the beginning of the particular
A. plant overhead cost year.
B. fixed charges D. none of these.
C. direct production cost 13. Which of the following relationship is not correct is case
D. general expenses of a chemical process plant ?
5. Pick out the wrong statement. A. Manufacturing cost = direct product cost + fixed
A. The annual depreciation rate for machinery and charges + plant overhead costs
equipments in a chemical process plant is about 10% of the B. General expenses = administrative expenses +
fixed capital investment. distribution & marketing expenses
B. Annual depreciation rate of buildings in a chemical C. Total product cost = manufacturing cost + general
plant is about 3% of its initial cost. expenses
C. Insurance rates on annual basis in a chemical D. Total product cost = direct production cost + plant
plant may be about 1% of the fixed capital investment. overhead cost.
D. In a chemical industry, research and development 14. For a given fluid, as the pipe diameter increases, the
cost amounts to about 15% of net sales realisation (NSR). pumping cost
6.__________ method for profitability evaluation of a project A. decreases.
does not account for investment cost due to land. B. increases.
A. Net present worth C. remains the same.
B. Pay out period D. may increase or decrease, depending upon
C. Discounted cash flow whether the fluid is Newtonian or non-Newtonian.
D. Rate of return on investment 15. In which of the electric power generation system, the
7. The total investment in a project is Rs. 10 lakhs and the operating cost is minimum ?
annual profit is 1.5 lakhs. If the project life is 10 years, then A. Thermal
the simple rate of return on investment is B. Nuclear
A. 15% C. Hydroelectric
B. 10% D. Fast breeder reactor
C. 1.5% 16. Accumulated sum at the end of 5 years, if Rs. 10000 is
D. 150% invested now at 10% interest per annum on a compound
8. Nominal and effective interest rates are equal, when the basis is Rs.
interest is compounded A. 15000
A. quarterly B. 16105
B. semi-annually C. 18105
C. annually D. 12500
D. in no case, they are equal 17. Operating profit of a chemical plant is equal to
9. Which of the following elements is not included in the A. profit before interest and tax i.e., net profit +
scope of market analysis ? interest + tax
A. Competition from other manufactures. B. profit after tax plus depreciation
 C. net profit + tax ranges roughly from __________ percent of the total product
D. profit after tax cost.
18. In a manufacturing industry, break even point occurs, A. l to 5
when the B. 10 to 20
A. total annual rate of production equals the C. 25 to 35
assigned value. D. 35 to 45
B. total annual product cost equals the total annual 27. The economic life of a large chemical process plant as
sales. compared to a small chemical plant is
C. annual profit equals the expected value. A. only slightly more
D. annual sales equal the fixed cost. B. much more
19. Gross earning is equal to the total income minus C. slightly less
A. total product cost D. almost equal
B. fixed cost 28. Cost of instrumentation in a modern chemical plant
C. income tax ranges from __________ percent of the total plant cost.
D. none of these A. 5 to 10
20. The depreciation during the year 'n', in diminishing B. 20 to 30
balance method of depreciation calculation, is calculated by C. 40 to 50
multiplying a fixed percentage 'N' to the D. 60 to 70
A.initial cost. 29. __________ taxes are based on gross earnings.
B. book value at the end of (n - 1)th year, A. Property
C. depreciation during the (n - 1)th year. B. Excise
D.difference between initial cost and salvage value. C. Income
21. Scheduling provides information about the D. Capital gain
A. proper utilisation of machines. 30. Pick out the wrong statement.
B. means to minimise idle time for machines. A. Net worth means paid up share capital and
C. time of completion of job. reserve & surplus (i.e. shareholders equity).
D. time of starting of job and also about how much B. Return on equity = profit after tax/net worth.
work should be completed during a particular C. Working capital turn over ratio = sales/net
period. working capital.
22. The inventory of raw materials included in the working D. Total cost of production is more than net sales
capital is usually about __________ months supply of raw realisation (NSR) at break even point.
materials valued at delivery prices. 31. If the interest rate of 10% per period is compounded half
A. one yearly, the actual annual return on the principal will be
B. three __________ percent.
C. six A. 10
D. twelve B. 20
23. Which of the following is the costliest material of C. >20
construction used in pressure vessel construction ? D. < 20
A. Low alloy steel 32. Which of the following is a component of working capital
B. Lead investment ?
C. Titanium A. Utilities plants.
D. High alloy steel B. Maintenance and repair inventory.
24. Most chemical plants use an initial working capital C. Process equipments.
amounting to 10-20% of the total capital investment. But this D. Depreciation.
percentage may increase to __________ percent in case of 33. 'Six-tenth factor' rule is used for estimating the
seasonal products manufacturing plant. A. equipment installation cost.
A.30 B. equipment cost by scaling.
B. 50 C. cost of piping.
C.75 D. utilities cost
D.95 34. Payback period
25. Fixed charges for a chemical plant does not include the A. and economic life of a project are the same.
A. interest on borrowed money. B. is the length of time over which the earnings on a
B. rent of land and buildings. project equals the investment.
C. property tax, insurance and depreciation. C. is affected by the variation in earnings after the
D. repair and maintenance charges. recovery of the investment.
26. 'Utilities' in a chemical process plant includes compressed D. all (a), (b) and (c).
air, steam, water, electrical power, oxygen, acetylene, fuel 35. In an ordinary chemical plant, electrical installation cost
gases etc. Utility costs for ordinary chemical process plants may be about
 A. 10-15% of purchased equipment cost. B. straight line
B. 3-10% of fixed capital investment. C. sum of the years digit
C. either (a) or (b). D. none of these
D. neither (a) nor (b). 43. Cost incurred towards __________ in a chemical plant is a
36. Pick out the wrong statement. component of the utilities cost.
A. Debt-equity ratio of a chemical company A. water supply
describes the lenders contribution for each rupee of owner's B. running a control laboratory
contribution i.e., debt-equity ratio = total debt/net worth. C. property protection
B. Return on investment (ROI) is the ratio of profit D. medical services
before interest & tax and capital employed (i.e. net worth + 44. Equipment installation cost in a chemical process plant
total debt). ranges from __________ percent of the purchased
C. Working capital = current assets + current liability. equipment cost.
D. Turn over = opening stock + production closing A. 10 to 20
stock. B. 35 to 45
37. Personnel working in the market research group is C. 55 to 65
reponsible for the job of D. 70 to 80
A. equipment selection. 45. Annual depreciation cost are not constant when, the
B. product evaluation. __________ method of depreciation calculation is used.
C. equipment design. A. straight line
D. cost estimation. B. sinking fund
38. "Break-even point" is the point of intersection of C. present worth
A. fixed cost and total cost. D. declining balance.
B. total cost and sales revenue. 46. Pick out the wrong statement.
C. fixed cost and sales revenue. A. Longer tubes are less expensive per unit heat
D. none of these. transfer area as compared to shorter tubes.
39. 'P' is the investment made on an equipment, 'S' is its B. A cost index is merely a number for a given year
salvage value and 'n is the life of the equipment in years. The showing the cost at that time relative to a certain base year.
depreciation for rath year by the sum-of years digit method C. Turn over ratio of a chemical plant is the ratio of
will be gross annual sales to the fixed capital investment.
D. Plates with butt welded joints are less expensive
A. compared to lap welded joints, because squaring of plates is
not necessary.
B. 47. Construction expenses are roughly __________ percent
of the total direct cost of the plant.
C. A. 2
B. 10
D. C. 30
40. Pick out the wrong statement. D. 50
A. Gross revenue is that total amount of capital 48. A machine has an initial value of Rs. 5000, service life of 5
received as a result of the sale of goods or service. years and final salvage value of Rs. 1000. The annual
B. Net revenue is the total profit remaining after depreciation cost by straight line method is Rs.
deducting all costs excluding taxes. A. 300
C. The ratio of immediately available cash to the B. 600
total current liabilities is known as the cash ratio. C.800
D. Consolidated income statement based on a given D. 1000
time period indicates surplus capital and shows the 49. Which of the following is not a component of
relationship among total income, costs & profit over the time depreciation cost ?
interval. A. Repairs and maintenance cost.
41. The payback method for the measurement of return on B. Loss due to obsolescence of the equipment.
investment C. Loss due to decrease in the demand of product.
A. gives a correct picture of profitability. D. Loss due to accident/breakdown in the
B. underemphasises liquidity. machinery.
C. does not measure the discounted rate of return. 50.A series of equal payments (e.g., deposit or cost) made at
D. takes into account the cash inflows after the equal intervals of time is known as
recovery of investments. A. perpetuity
42. Annual depreciation costs are constant, when the B. capital charge factor
__________ method of depreciation calculation is used. C. annuity
A. declining balance D. future worth
 D. none of these
Section 2 9. Gantt chart (or Bar chart) is helpful in
1. If an amount R is paid at the end of every year for 'n' years, A. efficient utilisation of manpower and machines.
then the net present value of the annuity at an interest rate B. preparing production schedule.
of i is C. efficient despatching of products.
D. inventory control.
10. Profit is equal to revenue minus
A. A. book value
B. total cost
C. operating cost
D. none of these
B.
11. In financial accounting of a chemical plant, which of the
following relationship is invalid?
C. R(1 + i)n
A. Assets = equities
D.R/(1 + i)n
B. Assets = liabilities + net worth
2. A shareholder has __________ say in the affairs of
C. Total income = costs + profits
company management compared to a debenture holder.
D. Assets = capital.
A. more
12. Depreciation
B. less
A. costs (on annual basis) are constant when the
C. same
straight line method is used for its determination.
D. no
B. is the unavoidable loss in the value of the plant,
3. Which of the following is not a component of the working
equipment and materials with lapse in time.
capital for a chemical process plant ?
C. does figure in the calculation of income tax
A. Product inventory.
liability on cash flows from an investment.
B. In-process inventory.
D. all (a), (b) and (c).
C. Minimum cash reserve.
13. According to six-tenths-factor rule, if the cost of a given
D. Storage facilities.
unit at one capacity is known, then the cost of similar unit
4. A reactor having a salvage value of Rs. 10000 is estimated
with '' times the capacity of the first unit is approximately
to have a service life of 10 years. The annual interest rate is
equal to __________ times the cost of the initial unit.
10%. The original cost of the reactor was Rs. 80000. The book
A. n
value of the reactor after 5 years using sinking fund
B. n0.6
depreciation method will be Rs.
C. n0.4
A. 40096
D. n
B. 43196
14. An annuity is a series of equal payments occuring at equal
C. 53196
time intervals, and this amount includes the sum of all
D. 60196
payments plus interest, if allowed to accumulate at a definite
5. Relative cost of chemical process plants in India is about
rate of interest from the time of initial payment to the end of
__________ percent more than the similar plants in U.S.A.
annuity term. Ordinary annuity is used in the calculation of
A. 15
the
B. 35
A. manufacturing cost.
C. 55
B. depreciation by sinking fund method.
D. 75
C. discrete compound interest.
6. Which of the following methods of depreciation
D. cash ratio.
calculations results in book values greater than those
15. Following the six-tenth factor rule, if a log-log plot of
obtained with straight line method ?
capacity of the equipment vs. cost of the equipment is made,
A. Multiple straight line method
then a straight line is obtained, whose slope is equal to
B. Sinking fund method
A. 0.1
C. Declining balance method
B. 0.6
D. Sum of the years digit method
C.0.2
7. Total product cost of a chemical plant does not include the
D. 0.8
__________ cost.
16. Which of the following does not come under the sales
A. market survey
expenses for a product of a chemical plant ?
B. operating labour, supervision and supplies
A. Advertising
C. overhead and utilities
B. Warehousing
D. depreciation, property tax and insur-rance
C. Legal fees
8. Depreciation is __________ in profit with time.
D. Customer service.
A. decrease
B. increase
C. no change
17. If 'S' is the amount available after 'n' interest periods for C. Payout period.
an initial principal 'P' with the discrete compound interest D. Discounted cash flow based on full life
rate 'i', the present worth is given by performance.
A. (1 + i)n/S 26. With increase in the discounted cash flow rate of return,
B. S/(1 + i)n the ratio of the total present value to the initial investment of
C. S/(1 + in) a given project
D. S/(1 + n)i A. Decreases
18. Effluent treatment cost in a chemical plant is categorised B. Increases
as the __________ cost. C. increases linearly
A. fixed D. remains constant
B. overhead 27. __________ of depreciation calculation does not take into
C. utilities account the interest on investments.
D. capital A. Present worth method
19. Factory manufacturing cost is the sum of the direct B. Sinking fund method
production cost C. Sum of the years-digits method
A. fixed charges and plant overhead cost. D. all (a), (b) and (c)
B. and plant overhead cost. 28. Optimum economic pipe diameter for fluid is determined
C. plant overhead cost and administrative expenses. by the
D. none of these. A. viscosity of the fluid.
20. Fixed capital investment of a chemical plant is the total B. density of the fluid.
amount of money needed to supply the necessary plant and C. total cost considerations (pumping cost plus fixed
manufacturing facilities plus the working capital for operation cost of the pipe).
of the facilities. Which of the following components of fixed D. none of these.
capital investment requires minimum percentage of it ? 29. Pick out the wrong statement.
A. Electrical installation cost. A. Gross margin = net income - net expenditure
B. Equipment installation cost. B. Net sales realisation (NSR) = Gross sales - selling
C. Cost for piping. expenses
D. Equipment insulation cost. C. At break even point, NSR is more than the total
21. Which of the following is the cheapest material of production cost
construction for the storage of sodium hydroxide upto a D. Net profit = Gross margin - depreciation - interest
concentration of 75% ? 30. Which of the following is not a current asset of a chemical
A. Stainless steel company ?
B. Plain carbon steel A. Inventories
C. Nickel B. Marketable securities
D. Copper C. Chemical equipments
22. The value of a property decreases __________ with time D. None of these.
in straight line method of determining depreciation.
A. linearly 31. The amount of compounded interest during 'n' interest
B. non-linearily periods is
C.exponentially A. p[(1+i)n-1)]
D. logarithmically B. p(1 + i)n
23. A present sum of Rs. 100 at the end of one year, with half C. p(1 - i)n
yearly rate of interest at 10%, will be Rs. D. p(1 + in)
A. 121 32. The __________ of a chemical company can be obtained
B. 110 directly from the balance sheet as the difference between
C.97 current assets and current liabilities.
D. 91 A. cash ratio
24. Maximum production start up cost for making a chemical B. net working capital
plant operational is about __________ percent of the fixed C. current ratio
capital cost. D. liquids assets
A. 1 33. Which of the following ceramic packing materials is the
B. 5 costliest of all ?
C. 10 A. Berl saddles
D. 30 B. Raschig rings
25. Which of the following is not a mathematical method for C. Pall rings
evaluation of profitability of a chemical process plant? D. Intalox saddles
A. Cash reserve. 34. Manufacturing cost in a chemical company does not
B. Rate of return on investment. include the
 A. fixed charges. 43. Chemical engineering plant cost index is used for finding
B. plant overheads. the present cost of a particular chemical plant, if the cost of
C. direct products cost. similar plant at some time in the past is known.
D. administrative expenses. The present cost of the plant = original cost x
35. Expenditure on research and development (R & D) is The most major component of this cost index is
categorised as the __________ , while making an estimate of
the total product cost for a chemical plant.
A. overhead cost
B. fixed expenses A. fabricated equipment and machinery.
C. general expenses B. process instruments and control.
D. direct production cost C. pumps and compressor.
36. For a typical project, the cumulative cash flow is zero at D. electrical equipments and material.
the 44. Purchased cost of equipments for a chemical process
A. end of the project life. plant ranges from __________ percent of the fixed capital
B. break even point. investment.
C. start up. A. 10 to 20
D. end of the design stage. B. 20 to 40
37. An investment of Rs. 100 lakhs is to be made for C. 45 to 60
construction of a plant, which will take two years to start D. 65 to 75
production. The annual profit from the operation of the plant 45. In a chemical process plant, the total product cost
is Rs. 20 lakhs. What will be the pay back time ? comprises of manufacturing cost and the
A. 5 years A. general expenses
B. 7 years B. overhead cost
C. 12 years C. R & D cost
D. 10 years D. none of these
38. 'Lang factor' is defined as the ratio of the capital 46. Which of the following is not a component of the fixed
investment to the delivered cost of major equipments. The capital for a chemical plant facility?
value of 'Lang factor' for fixed capital investment, for a solid- A. Raw materials inventory.
fluid processing chemical plant ranges from B. Utilities plants.
A. 1.2 to 1.4 C. Process equipment.
B. 2.5 to 2.7 D. Emergency facilities.
C. 4.2 to 4.4 47. An investment of Rs. 1000 is carrying an interest of 10%
D. 6.2 to 6.4 compounded quarterly. The value of the investment at the
39. A balance sheet for a chemical plant shows its financial end of five years will be
condition at any given date. It does not contain the
__________ of the plant.
A. current asset A.
B. current liability B. 1000 (1 + 0.1)20
C. long term debt
D. profit
C.
40. The 'total capital investment' for a chemical process plant
comprises of the fixed capital investment and the
A. overhead cost D.
B. working capital 48. Functional depreciation of an equipment is the measure
C. indirect production cost of decrease in its value due to its
D. direct production cost A. ageing
41. Generally, income taxes are based on the B. wear and tear
A. total income C. obsolescence
B. gross earning D. breakdown or accident
C. total product cost 49. The ratio of gross annual sales to the fixed capital
D. fixed cost investment is termed as the __________ ratio.
42. A balance sheet for an industrial concern shows A. cash reserve
A. the financial condition at any given time. B. capital
B. only current assets. C. turnover
C. only fixed assets. D. investment
D. only current and fixed assets. 50. Effective and nominal interest rates are equal, when the
interest is compounded
A. annually
B. fortnightly
 C. monthly D. evaporation capacity required.
D. half-yearly 54. Which of the following is the costliest source of getting
51. The amount of simple interest during 'n' interest period is hydrogen on commercial scale for the manufacture of
(where, i = interest rate based on the length of one interest nitrogeneous fertiliser ?
period, p = principal) A. Coal gasification
A. p.i.n. B. Steam reforming of naphtha
B. p(1 + i.n) C. Alectrolysis of water
C. p(1 + i)n D. Coke oven gas
D. p(1 - i.n) 55. Cost of piping in a fluid processing unit (e.g., distillation)
52. Pick out the correct statement. of a chemical process plant is about __________ percent of
A. Difference between income and expense is the fixed capital investment.
termed as gross revenue. A. 4
B. Unamortised cost is the difference between the B. 13
original cost of a property and all the depreciation charges C. 22
made to date. D. 34
C. Sum-of-the-years-digits methods of depreciation
calculation accounts for the interest on the investment.
D. Scrap value is the net amount of money
obtainable from the sale of used property over and above any
charges involved in its removal & sale.
53. Optimum number of effects in a multiple effect
evaporator is decided by the
A. cost benefit analysis.
B. floor area availability.
C. terminal parameters.
KEY
Section 1. 19. A 38. B 5. B 24. C 43. A
1. B 20. B 39. D 6. B 25. A 44. B
2. A 21. D 40. B 7. A 26. A 45. A
3. C 22. A 41. C 8. A 27. C 46. A
4. C 23. C 42. B 9. B 28. C 47. A
5. D 24. B 43. A 10. B 29. C 48. C
6. B 25. D 44. B 11. D 30. C 49. C
7. C 26. B 45. D 12. D 31. A 50. A
8. C 27. B 46. D 13. B 32. B 51. A
9. D 28. B 47. B 14. B 33. A 52. B
10. D 29. C 48. C 15. B 34. D 53. A
11. C 30. D 49. A 16. C 35. C 54. C
12. C 31. C 50. C 17. B 36. B 55. B
13. D 32. B 18. C 37. B
14. A 33. B Section 2. 19. A 38. C
15. C 34. B 1. B 20. D 39. D
16. B 35. C 2. A 21. B 40. B
17. A 36. C 3. D 22. A 41. B
18. B 37. B 4. D 23. A 42. A