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Engineering Economy, 5/e

Leland Blank, Texas A&M University
Anthony Tarquin, University of Texas - El Paso

Breakeven Analysis

Sample FE Exam Problems

How to use this section: This section includes questions and problems like those on a typical FE exam. For organization purposes only, they are presented in chapter order of the text Engineering Economy, 5^th edition, by Blank and Tarquin.

It is recommended that you read through each question carefully.


1	A manufacturing process has fixed costs of $20,000 per year with variable costs of $15 per unit. If the company sells each unit for $20, the number of units that must be sold each year in order to reach breakdown is nearest to:
		A)	1,000 units
		B)	2,000 units
		C)	3,000 units
		D)	4,000 units


2	The initial cost of machinery for producing a certain item is $50,000. The machinery will have a five-year life with no salvage value. The manufacturing process has a fixed cost of $5,000 per year and a variable cost of $16 per unit. At an interest rate of 8% per year, the number of units that must be sold at $20 per unit for breakdown is nearest to:
		A)	2,450
		B)	3,690
		C)	4,380
		D)	5,260


3	Figure 1 below is a graph of the cost of producing a certain part by two different methods, A and B. Click here to view Figure 1 (5.0K) The fixed cost of method A is closest to:
		A)	$600 per year
		B)	$30,000 per year
		C)	$70,000 per year
		D)	$100,000 per year


4	Fixed costs for a small import company are $500,000 per year. Its primary imported item sells at a revenue of $30 per unit and has variable costs of $1.20 per unit. The number of units the company must sell each year to breakeven is closest to:
		A)	11,500
		B)	14,400
		C)	17,400
		D)	21,600


5	A toy manufacturing company has a capacity of 300,000 units annually. The fixed cost of the production line is $200,000 per year with a variable cost of $4 per unit and revenues of $7 per unit. The percent of capacity that must be utilized for the company to breakdown is closest to:
		A)	22
		B)	31
		C)	39
		D)	46


6	The total cost of producing a product is represented by the equation: 0.003Q² + 4Q + 3 where Q is the number of units per year. If revenue is represented by 20Q, the maximum profit will occur at an annual production rate closest to:
		A)	2,667
		B)	4,000
		C)	5,333
		D)	6,667


7	A specified part can be obtained by either of two methods. Method A will have fixed costs of $40,000 per year and a variable cost of $20 per unit. Method B will have fixed costs of $60,000 per year and a variable cost of $15 per unit. The number of units that must be produced each year for the two methods to be equally attractive is closest to:
		A)	2,000
		B)	4,000
		C)	6,000
		D)	8,000


8	Two coatings are under consideration for a liquid chemical storage tank. A tank coating identified as Material A will have a first cost of $50,000 and a 10 year life, if repaired at the end of year five. Material B will cost $20,000 initially and $5,000 per year through its five year life. At an interest rate of 10% per year, the amount that could be spent for repairing Material A that would make the two breakeven is closest to:
		A)	$12,500
		B)	$16,400
		C)	$21,200
		D)	$25,600


9	Fixed costs for manufacturing a certain product are $25,000 per year. Variable costs are $5 per unit. The product can be purchased from another manufacturer for a flat rate of $10 per unit. The number of units that must be used each year in order for the manufacture and purchase alternatives to breakeven is closest to:
		A)	2,000 units
		B)	3,000 units
		C)	4,000 units
		D)	5,000 units


10	A used bulldozer with a remaining life of 5 years and $10,000 salvage value can be purchased for $40,000. The annual maintenance cost is expected to $20,000 per year. In addition, operating costs are expected to be $25 per hour. Alternatively, a bulldozer can be rented for $150 per hour. At an interest rate of 10% per year, the minimum number of hours per year the bulldozer must be utilized to justify its purchase is closest to:
		A)	230 hours
		B)	310 hours
		C)	460 hours
		D)	730 hours

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