SCHOOL OF BUSSINESS INNOVATION & TECHNOPRENEURSHIP

SEMESTER 1 2017/2018

BFT 214

ENGINEERING ECONOMICS

NAME : NURUL SHAHIRA BT MAT ARZAMAN

MATRIC NO : 161221685

CLASS : 21D

LECTURER’S NAME : PROF. DR. WAN AHMAD BIN WAN OMAR

Question 2-4
A municipal solid-waste site for a city must be located at Site A or Site B. After sorting, some
of the solid refuse will be transported to an electric power plant where it will be used as fuel.
Data for the hauling of refuse from each site to the power plant are shown in Table P2-4.

TABLE P2-4 Table for Problem 2-4

Site A Site B
Average hauling distance 4 miles 3 miles
Annual rental fee for solid-waste site $5,000 $100,000
3
Hauling cost $1.50/yd -mile $1.50/yd3-mile
If power plant will pay $8.00 per cubic yard of sorted solid waste delivered to the plant,
where should the solid-waste site be located? Use the city’s viewpoint and assume that
200,000 cubic yards of refuse will be hauled to the plant for one year only. One site must be
selected. (2.1)

Solution :
The fixed and variable costs for this job are indicated in the table shown below. Site rental
would be constant for the job, but the hauling cost would vary in total amount with the
distance and thus with the total output quantity of cubic yards (x).

Cost Fixed Variable Site A Site B

Rent √ $5,000(1) = $5,000 $100,000(1) = $100,000

Hauling cost √ 200,000(4)($1.50) 200,000(3)($1.50)

=$1,200,000 =$900,000
Total cost $1,205,000 $1,000,000

Site B, which has the larger fixed costs, has the smaller total cost for the job. Therefore, Site
B is more profitable than Site A. Then, Site B must be selected.

Begin to make profit at the point where total revenue equal total cost as a function of the
cubic yards of sorted solid waste delivered to the plant. Based on Site B, we have

3 x $1.50 = $ 4.50 in variable cost per cubic yard delivered

Total Revenue = Total cost

Price x Volume = Fixed cost + Variable cost

Fixed cost
Volume to Breakeven = Price−Variable cost
 8x = 100,000 + 4.50x
8x – 4.50x = 100,000
3.50x = 100,000
100,000
X = 3.50

X = 28,571.43
Therefore, by using Site B, it will begin to make profit on the job after delivering 28,571.43
cubic yards of sorted solid waste. The point where the volume starts to make profit is called
“break-even point (BEP)”, see Figure 2.4 for graphical presentation.

600000

Profit region
500000

Total revenue
400000
Amount in $

Break-even point
300000
Fixed cost

200000

Total costs
100000
loss region

0
0 10000 20000 30000 40000 50000 60000 70000

sorted solid waste volume in cubic yards