ET2051 Engineering Management - Staff.city.ac.uk - City University

CITY UNIVERSITY
LONDON
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ET2051 ENGINEERING MANAGEMENT
May 2007
Attempt THREE questions from the FIVE available
All questions carry equal marks
Standard graph paper to be provided.
Date: (May 2007)
Time: (2 hours)
Page 1 of 6
ET2051 Engineering Management II Jun07.doc

Question 1.
(a)
(i) Why do large companies often set up a centralised purchasing department
to buy frequently used materials and components, which are then kept in
Stores until the user department requires them. Are there any disadvantages to
this procedure?
[4 marks]
(ii) Stores may charge the user department for the materials and items it holds
in a number of different ways. Name three of these ways and describe the
advantages and disadvantages of each.
[6 marks]
(b) The Stores Branch of an engineering firm takes delivery of batches of logic chips,
"logichips", that are to be used in several of the products made by the firm's two
production arms: HomeWare Division (HWD) and Factory Products Division (FPD).
Delivery occurs over the summer months, and there is a considerable variation in the
price paid by Stores Branch:
1 June: 3000 logichips @ £6.00 each
1 July: 4000 @ £4.50 each
1 August: 3500 @ 10.00 each
1 September: 5000 @ 7.50 each
1 October: 3500 @ 8.00 each
The company operates a First In First Out policy when charging for Stores'
withdrawals.
FPD withdraws 7500 logichips on 15 September. HWD withdraws 4000 logichips on
21 September.
(i) What is the size of the Stores' inventory of logichips on 2 September?
What is the average cost per logichip to Stores for the units purchased to this
date?
[2 marks]
(ii) What is the cost to FPD of the logichips it withdraws and hence what is the
average cost per logichip to FPD?
[2 marks]
(iii) What is the cost to HWD of the logichips it takes from Stores. What
value does HWD find for the average cost of the logichips it has withdrawn?
[2 marks]
(iv) The manager of HWD complains to the Managing Director for what he
sees as arbitrary discrimination in favour of FPD. What other methods of
charging for Stores' withdrawals could the Managing Director adopt? What
would you recommend?
[4 marks]
Page 2 of 6
ET2051 Engineering Management II Jun07.doc

Question 2.
(a) The Maddock Curve for a project is given by:
A
B
wd
c
E
B
r c
= − +
(2.1)
c
E
B
c
Explain each of the symbols in equation (2.1) above.
[6 marks]
(b) You have been posted to a new Department and asked to take over responsibility
for managing the ongoing project to build a new small-scale chemical plant. This
£7.5M project was supposed to be complete within 30 months, but that time has just
elapsed and the plant is by no means finished. Your predecessor has spent only
£5.4M so far, and your boss is under the impression that the project is 72% complete;
he is expecting the plant to come in 12 months late but on budget. However, you have
just discovered a project file listing at the end of each 6 month period both the actual
cost of work done to date and the expected cost remaining. These are shown in the
table below.
Months into
project
Actual cost of work done
(£M)
6 1.5 6.15
12 2.55 4.65
18 3.75 4.2
24 4.35 6.0
30 5.4 4.95
Estimated cost remaining
(£M)
In order to show your boss the true state of affairs, you decide to draw the Maddock
Curve for the project, drawing on the ideal curve also for comparison purposes.
(i) Draw such a graph and attempt to explain why the actual project deviates from the
ideal.
[10 marks]
(ii) State what you think the eventual cost of the project will be, and provide
justification for this estimate. At the current rate of progress, how much longer will it
be before the project is complete?
[4 marks]
Question 3.
(a) (i) Explain the terms, "variable costs" and "fixed costs".
[2 marks]
(ii) Can you give an example of a variable cost for a company running a scheduled
bus service?
[2 marks]
(iii) What is the meaning of the term "total absorption cost"?
[1 mark]
Page 3 of 6
ET2051 Engineering Management II Jun07.doc

(b) Julian Carruthers is making cases of Coupled Cutlery, where each case contains 12
Knorks, 12 Sporks and 12 Spifes. Material costs are:
• Strip metal @ £35 per case of cutlery
• Lubricants @ £3 for 36 implements
• Packing @ £2 per case.
In addition, part-time labour costs £100 for 10 cases. There are three full-time
workers, who cost the firm £100 a week each. Overheads are £200 per week. The
machines cost £26,000 and are depreciated over 5 years. Finance has been partly
from Mr Carruthers's own money and partly from a loan of £25,000 at 20% per
annum, repayable in full after 1 year.
(i) List the fixed costs per week and find their total. (Round to nearest £100.)
[4 marks]
(ii) List the variable costs per case and find their total.
[4 marks]
Question 4.
(iii) Draw a graph of total absorption cost versus quantity over the range 5 to
20 cases per week.
[4 marks]
(iv) Julian Carruthers found he could sell 5 cases per week at £200 per case,
and estimated that he could sell 15 cases per week at £150 per case. Use this
information together with your graph under (b)(iii) above to estimate the
profitable range of production.
[3 marks]
(a) (i) If a certain piece of process equipment is designed to carry a throughput, Q
0
,
and has a capital cost, C
0
, write down the general power law expression for the
capital cost, C, of a similar piece of equipment designed for a different throughput, Q.
[3 marks]
(ii) A compressor costing £600,000 has a throughput of 3 m 3 /s. Given that the
exponent in the power law is 0.8, estimate the cost of a compressor of the same
pressure ratio giving a throughput of 4 m 3 /s.
[2 marks]
(b) The table below gives the summary capital costs for a 500 te/day methanol plant,
built on a new, green-field site.
Page 4 of 6
ET2051 Engineering Management II Jun07.doc

DIRECT COSTS £M
Chemical reactor 3
Compressor 5
Circulator 4
Heat exchangers 3
------
Total purchased equipment delivered 15
Plant installation 32
Land 0.90
------
Total direct plant costs 47.9
INDIRECT COSTS
Engineering and supervision (here assumed proportional
to cost of total purchased equipment delivered) 4.95
Construction expenses (here assumed proportional to
cost of total purchased equipment delivered) 6.15
TOTAL DIRECT AND INDIRECT PLANT COSTS 59.0
Contractor's fee 2.95
Contingency 5.90
TOTAL ERECTED COST 67.85
Table 4(a): Costs for 500 te/day methanol plant
(i) What is a Lang factor? Calculate the Lang factor for this 500 te/day methanol
plant.
[4 marks]
(ii) Power laws are to be used to estimate the cost of the chemical reactor, compressor,
circulator and heat exchangers for a 1000 te/day methanol plant. Company records
suggest that the exponents are as shown in Table 4(b)
Plant item
Exponent
Chemical reactor 0.7
Compressor 0.8
Circulator 0.6
Heat exchangers 0.75
Table 4(b): Exponents for use in power laws for various plant items
Estimate the cost of the chemical reactor, the compressor, the circulator and the heat
exchangers for the 1,000 te/day methanol plant.
[8 marks]
(iii) Hence estimate the total cost of the 1,000 te/day methanol plant.
[3 marks]
Question 5.
Page 5 of 6
ET2051 Engineering Management II Jun07.doc

(a) The engineering profession in the UK was reorganised in January 2002. Explain
its current structure and, briefly, the roles of the constituent bodies. (You may find it
useful to draw an organisation chart here.)
[4 marks]
(b) Name the three categories of engineer recognised in the UK by the Engineering
Council (UK). Explain the different roles fulfilled by each and the qualifications
required for registration in each category.
[8 marks]
(c) The UK Engineering Institutions emphasise the desirability of their members
having management training and experience in addition to technical skills. Why do
you think this is so?
[8 marks]
Internal Examiner:
Professor P. J. Thomas
Page 6 of 6
ET2051 Engineering Management II Jun07.doc