Question

Please Solve part b) by deatils !

Maintenance costs for a small bridge with an expected 60- years life are estimated to be $1,000 each year for the first five years followed by a $ 10,000 expenditure in the 15 year and a $ 15,000 expenditure in year thirty. If i- 10% per year what is the equivalent uniform annual cost over the entire 60- year-period. An engineering consulting firm measures its output in a standard service hour unit, which is a function b the personal grade levels in the professional staff. The variable cost is $62 per standard service hour, the charge rate (i.e the selling price (p)) is $ 86 per hour. The maximum output of the firm is $2,024,000. For this firm. What is the breakeven point in standard service hours? What is the price- safety margin? 1. 2. 3. What is the percentage change in the breakeven point, if variable cost per-hour reduced 10% and if the selling price per unit is increasing by 10%?

Answer 1

(b)

(1)

Break-even Hours = Fixed cost / (price - unit variable cost) = $2,024,000 / $(86 - 62) = 2,024,000 / 24 = 84,333

Break-even hours as percent of total capacity = (84,333 / 160,000) x 100% = 52.71%

(2)

Price-safety margin = [(Maximum number of hours - Break-even hours) / Maximum number of hours] x 100%

= [(160,000 - 84,333) / 160,000] x 100%

= (75,667 / 160,000) x 100%

= 47.29%

(3)

Revised price = $86 x 1.1 = $94.6

Revised unit variable cost = $62 x 0.9 = $55.8

New Break-even Hours = 2,024,000 / (94.6 - 55.8) = 2,024,000 / 38.8 = 52,165

% Change in break-even hours = [(52,165 / 84,333) - 1] x 100% = (0.6186 - 1) x 100% = (- 0.3814) x 100%

= - 38.14% (decrease)