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This is lectures note about Break Even and Present Economy Studies within the Engineering Economy.
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MM 314 Engineering Economy
MM 314 ENGINEERING ECONOMY
DR. MUSTAFA YURDAKUL
COST (Period Expenses-Cost per unit)
BREAK EVEN ANALYSIS
PRESENT ECONOMY ANALYSIS
2Various types of manufacturing costs incurred by a manufacturer
3When a manufacturer produces a SINGLE product type, HOW DO YOU CALCULATE COST PER UNIT?
4When a manufacturer produces MULTIPLE product types, HOW DO YOU CALCULATE COST PER UNIT? THE KEY QUESTION: HOW DO YOU DISTRIBUTE INDIRECT (OVERHEAD) COSTS TO DIFFERENT PRODUCT TYPES?------ VOLUME BASED COSTING------ ACTIVITY BASED COSTING (ABC)
5BREAK-EVEN CHART ANALYSIS-AT LEAST HOW MANY DO WE HAVE TO PRODUCE TO PAY OUR ANNUAL VARIABLE COSTS AND RECOVER OUR FIXED COSTS?
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The general price-demand
relationship
The demand for a
product or service is
directly related to its
price according to p=a-
bD where p is price, D is
demand, and a and b are
constants that depend on
the particular product or
service.
Total revenue depends on price
and demand.
Total revenue is the product of the selling price per
unit, p, and the number of units sold, D.
Calculus can help determine the
demand that maximizes revenue.
Solving, the optimal demand
is
We can also find maximum
profit
Profit is revenue minus cost, so
for
Differentiating, we can find the value of D that maximizes profit.
And we can find revenue/cost
breakeven.
Breakeven is found when total revenue = total cost. Solving, we find the demand at which this occurs.
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EXAMPLE
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TOTAL COST AND COST PER UNIT
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COSTS FOR OPERATING A CAR AND CALCULATION COST PER MILE
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Costvolume relationships pertaining to annual automobile costs
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Average cost per mile of owning and operating a car
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PRESENT ECONOMY EXAMPLES
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