(Aktu Btech) Industrial Engineering Important Unit-3 Engineering Economy and Inventory Control

The B.Tech AKTU Quantum Book will introduce you to the world of Industrial Engineering. To do well in this subject, access important notes, repeated questions, and helpful insights. Unit-3 Engineering Economy and Inventory Control

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Q1. What are the causes of depreciation ?  

Ans. Causes of depreciation can be put under two categories:

a. Due to Physical Condition:

• i. Wear and Tear: The machine’s components decay with use. This is one of the reasons things depreciate.
• ii. Physical Decay: Climate and atmosphere have an impact on things like chemicals, wires, and structures. They deteriorate as time passes as a result.
• iii. Accidental: Even a brand-new machine could experience an accident. One of the reasons for depreciation is this. The machine should be insured to avoid this.

b. Due to Functional Condition:  

• i. Inadequacy: Due to usage and rising product demand, the equipment’s efficiency decreases. As a result, the machine cannot keep up with demand.   
• ii. Obsolescence: Large changes occur every day as a result of scientific discoveries. It’s possible for a new, more effective machine to be released onto the market than the one we currently have. The old machine becomes obsolete because of the new one.  

Q2. A lathe was purchased for Rs, 90,000 on 1st January 1975, the erection and installation cost being Rs. 14,000. The lathe was replaced by new one on 31st December 1994. If the scrap value of the lathe was estimated as Rs 30,000, what should be the rate of depreciation and depreciation fund on 15th June 1984. 

Ans. Given: Cost of lathe = Rs. 90,000, Erection and installation charges = Rs. 14,000, Serap values = Rs, 30,000    

To Find: Rate of depreciation and depreciation fund.  

1. Initial cost of lathe,

C = (Cost of lathe) + (Erection and installation charges) 

= Rs. 90,000 + Rs. 14,000 = Rs. 1,04,000  

2. Life of the lathe (N) = From 1st Jan. 1975 to 31st Dec. 1994  

= 20 years 

3. Therefore rate of depreciation / year = (C- S) / N 

= Rs.(1,04,000 – 30,000) / 20 = Rs. 3,700

4. Depreciation fund on 15 June 1984

= 9 installments of depreciation i.e., from 1st Jan. 1975 to 15 June 1984 should be accumulated 

= 9 x 3,700 = Rs. 33,000 

Q3. What is payback period method ? Also write its advantages and disadvantages.

Ans. A. Payback Period Method:     

• 1. The payback period is the shortest amount of time the system needs to recoup the entire cost of the investment.
• 2. The number of years needed for the measure to recover the initial investment is calculated as a consequence.
• 3. It is a method of capital investment appraisal.
• 4. The payback period counts the years needed for the cash inflows after taxes to cover the project’s initial outlay.
• 5. Payback period can be illustrated by cash flow diagrams (CFD) as shown in Fig. 

• 6. As indicated in the CFD, the large benefits occurring after the payback period are not considered in the payback evaluation. 
• 7. Pay back (PB) is given by

B. Advantages of Payback Period Method:

• 1. Easy to understand. 
• 2. Simple to calculate. 
• 3. A quick method for evaluating relatively inexpensive measures based on payback time. 
• 4. Easier of communication to a non-technical audience.  

C.  Disadvantages of Payback Period Method:

• 1. Because it does not account for differences in projects’ timing or cash flow volume, it does not accurately quantify even the cash inflows over the payback period.
• 2. The complete project life during which cash flows are produced is not taken into account.
• 3. We are unable to compare intricate projects and metrics where costs and savings fluctuate in scope and timing.
• 4. It does not take into consideration expenses and benefits after the equipment has been paid for, which can hurt projects with a long usable life (e.g. a high efficiency chiller with a 20 year life).

Q4. Describe net present value (NP) method. 

Ans.

• 1. When evaluating investment proposals, the Net Present Value (NPV) technique also considers the time value of money.
• 2. It is comparable to the IRR technique, with the exception that the present value of upcoming cash inflows is calculated using a predetermined discount rate.
• 3. The net present value is calculated as the sum of the cash inflow present values less the cash outflow present values. The project is making a return that is greater than the discount rate if the net present value is positive.
• 4. NPV can be defined as the total of all benefits in each year’s present value minus the total of all expenses in each year’s present value.
• 5. In this method, the discount is used to compare benefits and costs at a single point in time.
• 6. Present value for project may be calculated as, 

Where,  CF = Net cash flow,

r = Discount rate, and

t = Time of cash flow.  

• 7. The relative weight of what investors anticipate or the actual return realized will have an impact on the market price of the shares.
• 8. The discount rate (r) that is used to convert benefits into present values is the minimum rate when the NPV is zero, the return on investment just equals the expected rate.  
• 9. If NPV > 0, the return would be higher than expected. 

Q5. Write short on following

a. Perpetual inventory control system. 

b. Periodic inventory control system. 

Ans. a. Perpetual Inventory Control System:

• 1. This strategy avoids time waste and makes verification simple by continuously reviewing inventory throughout the year when there is a minimum amount of material on hand.
• 2. Either an insider or an outsider can be charged with the duty of verification.
• 3. Unlike with annual physical verification, work is not halted in this procedure for physical verification.

b. Periodic Inventory Control System: 

• 1. The periodic system uses an irregular physical count to gauge inventory levels and selling prices. The purchasing account serves as a record for merchandise purchases.
• 2. At the conclusion of a predetermined period, which may be once a month, once a quarter, or once a year, the inventory account and the cost of goods sold account are updated.
• 3. A company’s gross margin is revealed by deducting the cost of products sold from revenue, which is a crucial accounting metric.
• 4. Cost of goods sold under the periodic inventory system is calculated as follows: 

Beginning Balance of Inventory + Cost of Inventory Purchases – Cost of Ending Inventory = Cost of Goods Sold 

Q6. Explain elements of queuing model. 

Ans. Elements of queuing model are as follows:

a. Queue Discipline:

• 1. It is a rule that stipulates that consumers are chosen for service once a line has formed.
• 2. First come, first served is the most popular queuing rule “(FCFS), or the “first in, first out” (FIFO) principle, which requires that clients be attended to strictly in the order in which they arrive.
• Third, observe the last-in, first-out rule “The last arrival in the system is serviced first, or under the (LIFO) rule.
• 4. The last item loaded is removed first, and this discipline is used in the majority of cargo handling circumstances.
• 5. Other disciplines include the “selection for service in random order” (SIRO) rule, which services arrivals in a random order regardless of when they enter the system, and various priority schemes, which give one customer’s service priority over another.  

b. Input and Holding Times:

• 1. It illustrates the way in which users access the system.
• 2. The interval between two subsequent arrivals, or the inter-arrival time, can also be used to represent arrivals.
• 3. Arrivals can be separated by equal time intervals, unequal but unquestionably known time intervals, or unequal but known time intervals whose probabilities are known; these are referred to as random arrivals.
• 4. The number of clients who arrive at the service station per unit of time, or the pace at which they do so, is referred to as the arrival rate.
• 5. The service time or holding time is the amount of time that passes for a customer at a service facility between the start of the service and its conclusion.

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