UNIVERSITI TUN HUSSEIN ONN MALAYSIA BDA 40902

ENGINEERING ECONOMY

ASSIGNMENT TASK 2:
FINANCIAL PLANNING AND PRESENTATION
SEMESTER 1
SESSION 2022/2023

GROUP NUMBER: 12

LECTURER: DR. HASLINA BINTI ABDULLAH SECTION: S5

NAME MATRIC NO. SECTION

(1) ABDULAZIZ MOHAMMED QAID AL-MEKHLAFI AD200222 1
MEMBER

(2) MUHAMMAD AMIR FIKRI B. MOHD NOR CD180200 1

(3) MUHAMMAD NAJMI FIRDAUS BIN ZULKIFLI AD200090 1
(4) ZAID MUHAMMAD BIN ABDULLAH CD180221 1
(5) AMIRUL IDHAM BIN ZAIDE AD200096 1

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 CONTENTS

CHAPTER 1 INTRODUCTION 3

CHAPTER 2 APPLICATION OF BUSINESS FUND 4

CHAPTER 3 DETERMINATION OF MONTHLY INSTALLMENT 5

CHAPTER 4 EVALUATION OF PROFITABILITY OR

OR NON-PROFITABILITY 6

4.1 ESTIMATION OF TOTAL COST PER UNIT 6

4.1.1 FIXED COST 6

4.1.2 VARIABLE COST 7,8

4.1.3 TOTAL COST 9

4.2 DETERMINATION OF SALE PRICE,

BREAK EVEN AND PROFIT MARGIN

4.2.1 SALES PRICE 10

4.3 BREAK EVEN ANALYSIS 11,12

4.4 PROFIT ANALYSIS 13

CHAPTER 5 CONCLUSION 14

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 CHAPTER 1

INTRODUCTION

Engineering economy concepts are widely used in financial planning of business

proposals. Engineering economy involves the systematic evaluation of the economic merits
of proposed solutions to engineering problems. It deals primarily with concepts and methods
of analysis related to the study of economic efficiency of engineering projects in terms of
their costs and benefits. The purpose of this approach is to help decision-makers choose the
best course of action among several alternatives. In this context, engineering economy
provides a framework for evaluating the financial viability of a project, taking into account
factors such as initial costs, operating costs, revenues, and the time value of money.

In the BDA40902 Engineering Economy class, for our first task was to create a new
company proposal by using the Engineering Economic concept. As a result, we have chosen
to propose an on-demand student storage option for our company plan. Why do we select a
storage facility? A university student should consider storage because it is a wise investment
to preserve their priceless possessions safely and securely. Organizing your semester break
storage can be a difficult and time-consuming chore as final examinations approach and
breaks come to an end. As a result, our company provides storage and door-to-door moving
services for the students’ personal items. Self-storage facilities make it easier for college
students to store their stuff in a safe and secure manner. Students need space to store their
dorm belongings, and some need additional room when living on campus. One student might
only be allowed to use one storage box, for instance. Even if they leave it there, there is no
guarantee that their stuff will still be there when they return. Since lost personal items cannot
be recovered, it is not a pleasant experience for students.

In this second task, we were required to provide a financial planning for the previous
business proposal which is TikTok Express. In this task, a certain amount of money or capital
is needed to initiate the business. A way to accomplish this is by applying loan to the bank
or other related institution. We had to assume that our company capable of paying the amount
of money with a specific loan interest rate set by the bank or related institution. Therefore,
this financial plan included the application of business fund, determination of business plan,
evaluation of profitability required for the business.

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 CHAPTER 2

APPLICATION OF BUSINESS FUND

Application of P/F
Let says the total initial cost for TikTok Express is P = RM118 190 and the savings receive interest at a
rate of 15% per year, if this savings process is repeated until the fifth year, then we must calculate the
future value of savings as below.

Initial cost (P) = RM118 190

Machine life expectancy (n) = 5 years

Minimum rate return (i) = 15% per year

RM118 190

In order to know the future value, F, at the end of the fifth year, problem-solving can be done through
two methods that are using formula and factorable.

I. By using the formula:

F = 118190 (1 + i)n

F = 118190 (1 + 0.15)5

F = 118190 (2.0113)

F = RM 237715.55

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 CHAPTER 3

DETERMINATION OF MONTHLY INSTALLMENT

Application of P/F
A monthly instalment is defined as a borrower making a predetermined payment amount to a lender on a
specific date at the end of each pay period. Monthly instalments are used to pay off both interest and
principal each month, so that the loan, including interest, is fully paid off over a certain number of years.
To justify the monthly instalment, two applications, A/P and A/F, might be used. The A/P and A/F
formulas can be found in equations (i) and (ii), respectively. It can be used for the former when the
primary amount, P, is specified, and for the latter where the F is the cumulative amount required to pay
the bank.
𝐴 = 𝑃(𝐴/𝑃, 𝑖, 𝑛) …… (1)
𝐴 = 𝐹(𝐴/𝐹, 𝑖, 𝑛) ……. (2)
In this instance, the application of A/F is used to calculate the monthly instalment. The total debt required
to pay the bank is at RM 1,663,142.55 with a loan interest of 5% from a bank for the loan period of 15
years. The calculation for the monthly instalment is per below. Calculation of monthly instalment by A/F
application:
Base period: 15 years

Interest rate: 5 % - annually

P = RM 118,190

F = RM 237680.09

(𝐴/𝐹, 5% ,15) = 0.04634

𝐴 = 𝐹(𝐴/𝐹, 𝑖, 𝑛)
𝐴 = 237680.09(0.04634)
𝐴 = 𝑅𝑀 11,014.10 𝑝𝑒𝑟 𝑦𝑒𝑎𝑟
𝑨 = 𝑹𝑴 𝟗𝟏𝟕. 𝟖𝟒 / 𝒎𝒐𝒏𝒕𝒉
Where n = 15 years (12 month) = 180
RM 237,680.09

Cash Flow for Monthly Instalment

 CHAPTER 4

EVALUATION OF PROFITABILITY OR NON

PROFITABILITY OF BUSINESS PROPOSAL

4.1 Estimation of Total Cost per Unit

4.1.1 Fixed Cost

Fixed costs, also known as FC, are expenses that remain constant regardless of the short-
term increase or decrease in the quantity of units produced or sold. This means that fixed
expenses do not change if the activities don't grow too large. Fixed expenses are harder to
manage because they do not depend on volume or operations. They often include a
temporal component, such as lease and rental payments, insurance, and interest. Equation
3.1 is used to calculate fixed costs, and Table 3.1 displays the total fixed cost of the Tik
Tok Express service. Fixed costs are those that don't change over the course of time and
are usually established by contract agreements or schedules. They are the base costs
involved in operating a business comprehensively and do not change over the life of an
agreement or cost schedule.

Fixed Cost (FC) = Ownership + Machinery (Equation 3.1)

Table 3.1: Total Fixed Cost

Item Amount

Ownership RM 75 650

Machinery RM 22 840

Total RM 98 490

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4.1.2 Variable Cost

Variable costs, also known as VC, are expenses that change based on the amount of a
company's product or service being provided. This means that a company's variable costs
will increase or decrease in response to its current output; they will rise with higher
production and fall with lower production. Examples of variable costs include labor,
transportation, raw materials, and distribution expenses. The TikTok Express service's
variable expenses include the projected total cost of the transportation trips and the
expected total cost of the delivery box. Table 3.2 shows the estimated total cost of the
transportation trips, and Table 3.3 displays the estimated total cost of the delivery box.
Variable costs are costs that vary depending on the volume of activity, and they increase
as the volume of activities increases and decrease as the volume of activities decreases.
Understanding variable costs is essential for maintaining efficiency and profitability in
business.

a) Transportation Trip Cost

Table 3.1: Estimated Total Price for Transportation Trips

Estimated Total
Distance (KM) Price (RM) Total Price (RM)
Trip (Trip)

1-5 5 350 1 750

6-10 10 300 3 000

11-20 15 100 1 500

Total 6 250

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 b) Storage Box Cost

Table 2.3: Estimated Total Price for Delivery Box

Estimated Storage
Boxes Price (RM) Total Price (RM)
(Box)

Empty 1 100 100

Small 18 200 3 600

Medium 30.00 250 7 500

Large 45.00 50 2 250

Total 13 450

Thus, the total variable cost is:

Total variable cost, VC = Transportation Cost + Storage box cost

VC = RM 6 250 + RM 13 450

VC = RM 19 700

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4.1.3 Total Cost

Total cost refers to the actual cost incurred in producing a specific volume of goods. The cost
overall is the sum of the fixed cost, which remains constant and independent, and the variable
cost, which changes as the total output changes. Equation 3.2 is used to calculate the total cost.
The fixed cost is independent of the quantity of goods produced and includes inputs such as
buildings and machinery. The variable cost varies according to the quantity of goods produced
and includes inputs such as labor and raw materials. The total cost of producing a specific level
of output is the cost of all the factors of production. The total variable cost is the quantity of
output multiplied by the variable cost per unit of output. Examples of variable costs include
sales commissions, direct labor costs, cost of raw materials used in production, and utility costs.

Total Cost = Fixed Cost (FC) + Variables Cost (VC) × Quantity (Q) (Equation 3.2)

We assume Q is 600, and the calculation to find TC is stated below:

TC = FC + VC(Q)

TC = 98 490 + 19 700

TC = RM 118 190

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4.2 Determination of Sale Price, Break-Even, and Profit Margin

4.2.1 Sales Price

The cost of the service provided by the business is determined by the number of trips and the utilization
of storage facilities. In order to avoid any financial losses and start making a profit, the business must
reach a minimum service cost of RM118,190 monthly travel. This cost is calculated by adding the fixed
cost, which remains constant and independent, and the variable cost, which changes as the total output
changes. The equation used to calculate the total cost is shown in Equation 3.2. The fixed cost includes
inputs such as buildings and machinery, while the variable cost includes inputs such as labor and raw
materials. The total cost of producing a specific level of output is the cost of all the factors of
production. The additional total cost of one additional unit of production is called marginal cost. The
total variable cost is the quantity of output multiplied by the variable cost per unit of output. Examples
of variable costs include sales commissions, direct labor costs, cost of raw materials used in production,
and utility costs. Fixed costs are those that do not change over the course of time and are usually
established by contract agreements or schedules. They are the base costs involved in operating a
business comprehensively and do not change over the life of an agreement or cost schedule.

Average price for one delivery and storage services =

Total cost

Quantity of estimate trip and storage services in a month

Quantity of estimate trip in a month = 1000

Total Cost = RM 118,190

RM 118 190
P=
1000

P = RM 118.19

According to the calculations above, the entire cost that has been calculated yields a minimal
average price for one delivery and storage service of RM 118.19.

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4.3 Break-Even Analysis

A financial tool called a break-even analysis may be used to determine if a new service or
product will be viable for our company. In other words, figuring out how many products or
services a company can sell to pay expenses (especially fixed costs) is a financial calculation. In
a situation when we are at break-even, all costs have been paid but no money is made or lost.
When examining the connection between variable costs, fixed costs, and sales, break-even
analysis is helpful. A company with minimal fixed expenses would often have a low point of sale
where it would break even.

Total Revenue = Total cost

TR = TC

P(Q) = FC + VC(Q)

Where:
P = Unit Selling price
Q = Quantity / Volume of Output
FC = Fixed Cost
VC = Variable Cost

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Figure 3. 1: Break Even Analysis

Total operating cost:
Total cost = Fix cost + Variable

TC = RM 118,190

Average Price after markup =

Total price for trips and storage services in a month (RM)

30 days in a month

RM 19 700
=
30

= RM 657day

Total revenue = Average price after markup × Quantity of regular trip and storage service

TR = P × Q

TR = RM 657 (Q)

Breakeven point:
𝑇𝑜𝑡𝑎𝑙 𝑟𝑒𝑣𝑒𝑛𝑢𝑒 = 𝑇𝑜𝑡𝑎𝑙 𝐶𝑜𝑠𝑡

RM 657(Q) = RM 118 190

RM 118 190
Q=
RM 657

Q = 179.89 unit of services

According to the calculations above, a minimum of 179.89 services, or 180 services, are
required to attain breakeven in a month. 1000 services a month is our company's goal,
which is more than the breakeven point.
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4.4 Profit Analysis

The purpose of the profit analysis is to discover the profit margin that is used to calculate
how long it will take to recoup the money used in the business plan. According to the
earlier calculation, it is anticipated that there would be 1000 trips and storage services in a
month. We can determine the potential profit margin each month based on the projected
1000 trips and storage services. The calculation is displayed as follows:

Average Price for daily delivery and storage service = RM118.19

Average Markup Price for daily delivery and storage service = RM657

Average Markup Price − Average Price

Profit Margin = × 100%
Average Markup Price

Profit Margin = 657–118.19 × 100

657

Profit Margin = 538.81 × 100

657

Profit Margin = 82.01%

According to the calculations above, if we continue to provide our services for a total of 1000
trips and storage service each month, we might achieve a profit margin of 82.01%

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 CHAPTER 5

CONCLUSION

As we have completed our task which is financial planning related to our business
“TikTok Express” from task 1. In this context of financial planning, a business fund is
important. The application of the business fund showed total initial cost for TikTok
Express is P = RM118 190 and the savings receive interest at a rate of 15% per year, if this
savings process is repeated until the fifth year. Therefore, the future value, F, at the end of the
fifth year are RM 237715.55, and this can be solved by two methods that are using formula
and factorable. Next, determination of monthly installment which is one of the key in
financial planning especially in business world. A monthly instalment is defined as a
borrower making a predetermined payment amount to a lender on a specific date at the end of
each pay period. Monthly instalments are used to pay off both interest and principal each
month, so that the loan, including interest, is fully paid off over a certain number of years. To
justify the monthly instalment, two applications, A/P and A/F, might be used. The total debt
required to pay the bank is at RM 1,663,142.55 with a loan interest of 5% from a bank for the
loan period of 15 years. Monthly instalment by A/F application is RM 917.84 monthly that
required to pay.

In addition, financial planning also involves evaluation of profitability or non-

profitability of business proposal. This is because by doing so it can measure our business
performance, estimating our cash flow accurately, determining an investment as good
decision and identifying profitable customers and market segments. In the evaluation of
profitability or non-profitability contain estimation of total cost per unit as fixed, variable and
total cost included. Determination of sale price, break-even, and profit margin also
accountable as it important towards constructing the financial plan of our business proposal.
That included the sales price, breakeven analysis and the profit analysis.

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