# Quantitative techniques for estimation cost index 2

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Quantitative techniques for estimation Cost index

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2 · Examples Examples Example Example 1 (Breakeven Point When Price is Independent of Demand) An engineering consulting firm measures its output in a standard service hour unit, which is a function of the personnel grade levels in the professional staff. The variable cost ( c v ) is \$62 per standard service hour. The charge-out rate [i.e., selling price ( p )] is \$85.56 per hour. The maximum output of the firm is 160,000 hours per year, and its fixed cost ( C F ) is \$2,024,000 per year. For this firm, (a) what is the breakeven point in standard service hours and in percentage of total capacity? (b) what is the percentage reduction in the breakeven point (sensitivity) if fixed costs are reduced 10%; if variable cost per hour is reduced 10%; and if the selling price per unit is increased by 10%? So, what does this mean in market? Example Example 2 An automatic machine can be operated at three speeds,with the following results: Speed Output(Pieces per hour) Time between tool grinds(hours) A 400 15 B 480 12 C 540 10 A set of unsharpened tools costs \$500 and can be ground 20 times. The cost of each grinding is \$25. The time required to change and reset the tools is 1.5 hours,and such changes are made by a tool-setter who is paid \$8.00 per hour. Variable overhead on the machine is charged at the rate of \$3.75 per hour, including tool-changing time. At which speed should the machine be operated to minimize total cost per piece? The basic trade-off in this problem is between the rate of output and tool usage.
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• Winter '12
• JOHN
• breakeven point, \$8.00, \$3.75, \$2,024,000

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