ENGINEERING ECONOMY
ASSIGNMENT-IV
Dr. Binay Kumar, Department of Production Engineering, BIT Mesra, Ranchi
1. Discus the concept of cost and how it will be classified? What are the types of cost for
engineering analysis? Discus in brief. What is the cost structure of a manufacturing unit
explain in brief the various elements which go to make up the total cost of any product
define and explain the factory cost, manufacturing cost and selling cost.
2. Differentiate among the following cost terms:
(i) (a) First cost (b) operating maintenance cost (c) disposal cost (d) Past and sunk
costs (e) operating cost (f) Direct and indirect cost (v) price cost, Factory cost, production
cost, total cost sales price.
(ii) Define the following
(a) Fixed cost (b) Variable cost (c) opportunity cost
3. What are the items of expenditure in a factory which constitute the overhead expenses
to the cost of product? Compare the different methods of allocation of overheads used in
manufacturing industries. Discuss the merits and demerits of different method of overhead
allocation of overheads used in manufacturing industries. Discuss the merits and demerits
of different methods of overhead allocation.
Dr. Binay Kumar, Department of Production Engineering, BIT Mesra, Ranchi 2
4. Enumerate the methods of overhead allocation and describe the one most suitable for
process industries. Give reasons for your answer. What is meant by machine hour rate for
allotment of overheads cost? How it differ from labour hour rate.
5. (a)List the elements of costs which are added together to obtain the total cost of the
product. Discuss why it is essential to break up the total cost of the product into these
elements.
(b) Define standard cost.. Explain the methods of establishing standard material cost,
standard labour cost and standard overhead cost. Discuss the advantages and limitations of
standard cost and the condition under which this may be adopted.
6. A cast iron foundry employs 30 persons. It consumers materials worth of Rs. 25,000 and
pays workers of the rate of Re 1.00 per hour and in total overhead of 150 hours and paid at
double their normal rate. Find (i) the total cost (ii) The man-hour rate of overheads. Assume
an 8 hour working day.
Dr. Binay Kumar, Department of Production Engineering, BIT Mesra, Ranchi 3
7. A cast iron foundry employs thirty persons. In a particular month it consumed material
worth Rs. 25,000. The foundry paid its workers at the rate of Rs. 3.5 per hour. The factory
overhead is 25% of the prime coast and administrative overhead is 15% of factory coast.
The sales overhead come to 35% of production coast. Compute the total unit coast if 200
castings are produced in a month. Also compute the man-hour rate of overhead and labour
cost rate of overhead if there are 25 working days in a month having 8 working hours each
day. Further, the workers had an overtime of 150 hours and were paid at double their
normal rate.
8. Two molders can cast 25 gears in a day. Each gear weighs 3 Kg and the gear material
cost Rs. 2.5 per Kg. it overhead expenses are 150% of the direct labour and molders are
paid at the rate of Rs. 10.00 per day, Calculate the cost of producing one gear
Dr. Binay Kumar, Department of Production Engineering, BIT Mesra, Ranchi 4
9. A fitting and assembly shop had its factory overheads of Rs. 12,000 and the production
for the period in terms of direct labour was 24,000 hours. Find the rate per direct labour
hour. If a particular job takes 20 labour hour, calculate the overhead applied.
10. A factory is producing 1000 bolts and nuts per hour on a machine. Its material cost is
Rs.375 and labour cost is Rs. 245 and the direct expenses are Rs. 80. The factory cost is
150% of the total labour cost and office on cost is 30% of the total factory cost. If the
selling price of each bolt and nut is Rs. 1.30 calculate whether the management is going
loss or gain and by what amount.
Dr. Binay Kumar, Department of Production Engineering, BIT Mesra, Ranchi 5
11. A certain piece of work is produced by a firm in batch of 100. The direct material cost
for that 100 pieces work is Rs. 160.00 and the direct labour cost is Rs. 200. Factory on cost
is 35% of total material and labour cost. Overhead charges are 30% of the factory cost.
Calculate (i) Principal cost and factory cost (ii) If the management want to make a profit of
10% on the gross cost. Determine the selling price of each article.
12. Two workmen engaged in a forging hammer complete 20 connecting rods, each
weighing 4 Kg. The workmen are paid at the rate of Rs. 5.00 and Rs. 3.00 per day and
material cost is Rs. 2.00 per Kg. If 140% of direct labour is charged to complete the both
factory overheads and administration expenses, what will be unit cost of production of
these unit.
Dr. Binay Kumar, Department of Production Engineering, BIT Mesra, Ranchi 6
