CON330 UCSD Principle of Engineering Economy Research Paper Project

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Engineering

CON330

University of California San Diego

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(PLEASE LOOK AT THE ATTACHMENT FILE WHICH IS THE "SAMPLE CASE STUDY" TO HAVE AN IDEA ON HOW TO CHOOSE OR TO DO THE PROJECT)

CON E 330:

  • Case Study 50 Points: All Individual work;

You will be required to apply information that you learn to the Case Study Tasks

Recommend:

a) Select a Case-Study to cover 3-4 topics in your field of study; related to Process developments for Product design or Application and Implementation of capital equipment’s selections.

Interest and Equivalence Economic; Present Worth and Annual Cash Flow Analysis

Choosing the Best Alternative; Income Tax; Replacement Analysis; Inflation and Price Change

Safety and Environmental Needs in the Public or Private Sector.

b) Research Report MS word format 8 pages double space. All Individual case study report Bring Hard copy to class no POSTING on Bb.

c) All Case Study Assignment due Wednesday May 1; 2019 at the beginning of the class

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CON E 330 Section-1&2 Study Spring 2019 I. Case Study 50 Points: All Individual work; You will be required to apply information that you learn to the Case Study Tasks Recommend: a) Select a Case-Study to cover 3-4 topics in your field of study; related to Process developments for Product design or Application and Implementation of capital equipment’s selections. Interest and Equivalence Economic; Present Worth and Annual Cash Flow Analysis Choosing the Best Alternative; Income Tax; Replacement Analysis; Inflation and Price Change Safety and Environmental Needs in the Public or Private Sector. b) Research Report MS word format 8 pages double space. All Individual case study report Bring Hard copy to class no POSTING on Bb. c) All Case Study Assignment due Wednesday May 1; 2019 at the beginning of the class Select a Case Study to meet Course Learning Outcomes: Application: Case Study: 50 Points Proposal of Case Study; Explain the Issues or concerns and report 5 points Apply various Engineering Economy techniques (at least 3methods) and 15 points Apply relevant formulas for financial analysis. 5 points Explain engineering economy analysis in the Private or Public sector 10 points Apply economic analysis in managerial decision and recommendations 10 points With alternatives and future risk factor 5 points CASE STUDY EVALUATION FORM Area Outstanding (9-10) Facts The detail and cope of the information incorporated into the project demonstrates considerable familiarity. Facts, key concepts and principles were presented in an orderly fashion with logically sound conclusions. The student brought together ideas around to create a meaningful, coherent essay. The student could have provided greater detail and scope. The student had some difficulty furnishing sufficient evidence. The student failed to provide information that is accurate and relevant to the project. The student’s presentation of facts, and principles was orderly; with one erroneous inference. Some of the facts, are presented in a disorderly fashion with some erroneous inferences. The student brought together ideas, however, sufficient context is lacking. The student has demonstrated vocabulary and variety in expression superior to this grade level. The student consistently uses correct grammar, syntax, spelling, punctuation, and capitalization. The student has demonstrated vocabulary and variety in expression expected at this grade level. The essay contains satisfactory factual and conceptual content, but is presented in a disjointed, “grocery list” fashion. The student has not demonstrated vocabulary or variety in expression expected at this grade level. The student has an average of 3 or 4 errors per page in grammar, syntax, spelling, punctuation, and capitalization. Presentation of facts, key concepts and principles is disorderly and there are multiple errors in reasoning. The student has failed to construct a coherent essay built around an identifiable organizing theme or concept. The student has utilized a vocabulary with little or no range and/or no variety in expression. The student has used a wide variety of informative and relevant sources. The student has used a sufficient number of sources. The student has provided sources but had difficulty integrating them. Less than 12% 12-15% 15-20% Analysis Synthesis Vocabulary /Rhetoric Mechanics and sentence structure Research (if applicable) Turnitin Originality Good (7.5-9) The student has an average of fewer than 3 errors per page in grammar, syntax, spelling, punctuation, and capitalization. Fair (6-7.5) Poor (below 6) The student has an average of more than 4 errors per page in grammar, syntax, spelling, punctuation, and capitalization. The student has failed to provide sufficient relevant sources for this assignment. 20-25% Course Objectives • • • • • • • To Offer Framework for cost management in engineering Projects. To offer assistance in managerial decision making To introduce fundamentals of Personal, Private and Public-sector Financing Engineering Projects Apply Mathematics of finance to engineering and managerial decision making. Introduce the fundamentals of economic analysis used in engineering decision making. To introduce Economic Analysis of Replacement and Retention Decisions To prepare students for PE/FE Examinations Course Learning Outcomes: This course is one of many that you will take towards your degree in Civil, Construction or Environmental Engineering. Each of our courses is designed as part of your career development in your respective Engineering profession. Program Outcomes are intended to provide a broad base of knowledge to find your career. However, each course in the curriculum emphasizes particular aspects of that overall body of knowledge. Although other outcomes may also be addressed, this course is intended to have a particular emphasis on the following program outcomes OUTCOME 9: Apply relevant techniques, skills and modern engineering tools to solve a simple problem Assessed by: Homework, Midterm and Final Exam a) Formulate and solve time value of money problems b) Apply various Engineering Economy techniques to compare engineering alternatives. OUTCOME 12: Explain key concepts and problem-solving processes used in management Assessed by: Homework a) Apply results of economic analysis in managerial decision making b) Apply relevant formulas for financial analysis OUTCOME 13: Explain key concepts and problem-solving processes used in business, public policy and public administration Assessed by: Homework and Quizzes a) Explain relevance of engineering economy analysis in the private sector b) Explain relevance of engineering economy analysis in the public sector Writing a Research Paper Some general guidelines to keep in mind while writing a research paper. Finding a Researchable Topic • • • Try to narrow down two or three topics that truly interests you Talk with your course instructor and classmates about your topics Pose your topics as a question to be answered or a problem to be solved Finding, Selecting, and Reading Sources You will need to look at the following types of sources: • • • • Look up library books using catalog on Moodle or library page on the website. Search using the keyword or subject. Use LIRN. This database has peer reviewed full text articles, E-books, newspaper articles etc. Open courseware, Magazine and newspaper articles can provide you with some facts. Primary vs. secondary sources Documenting Information The following systems will help keep you organized: • • • Create an annotated bibliography for all your resources. This allows you to cite, summarize and evaluate resources. Use Bibme, Citefast or Refdot etc. to organize your content If you want to use 10 references, plan to research three times more that would be around 30. Start your paper from bottom up • • • • Start by writing references. Once you have enough material to start, work on the topic, its significance, etc. Use your referenced material to enhance your topic, refute it or build on it. Any time a quote is used from the above organized material, provide in text citation. Writing the Body • • • • Use outline and prospectus as flexible guides Build your essay around points you want to make (i.e., don't let your sources organize your paper) Integrate your sources into your discussion Summarize, analyze, explain, and evaluate published work rather than merely reporting it Writing Abstract • After completing your paper, write an abstract summarizing the paper. References • • Make sure all the in text citations have references. In APA, references have to be alphabetized. They have to follow hanging indentation. Generally, balance your references by having some from peer-reviewed journals, some from books and some from internet resources. Revise the Final Draft • • • • Go through the APA format checklist. Make sure there is no bias in writing. Put the paper through plagiarism detector Check capitalizations, indents, levels of headings, in text citations, tables etc. for correct usage CON E 430 FALL 2012 CASE STUDY Dr. Hossein Hemati Jonathan Madrigal Class ID # 52 12/3/12 1 Case Study: Economic Analysis of a Modified Conveyor System at BuickOldsmobile-Cadillac 2 1 Background The Buick-Oldsmobile-Cadillac (BOC) plant in Lansing, Michigan, is involved in the fabrication and assembly of the Olds Calais, Buick Somerset Regal, and Pontiac Grand Am. A small part of the total operation is the sheet molding compound (SMC) area where plastic parts are formed from sheets of plastic material. Front-end panels (the front part of the car where the lights are housed) are produced here, and a conveyor system is used to transport the panels after they are formed. This case study examines an economic justification analysis for a proposed modification of the conveyor system that would decrease the number of workers needed while improving quality and facilitating material flow. 2 Description of Present SMC Prime and Finish Process The SMC prime and finish operation starts on the first floor with stud drivers. Here a machine screws a two-ended bolt into each front end panel so that it can be attached to the car later. The conveyor then moves the panels upstairs where they are washed and primed. Next, the conveyor moves the panels through an oven to heat-treat the prime coating and then returns them to the first floor. An inspector checks each panel for pits and defects and marks them for the pit filler, who uses compound to fill in the defects. The compound must dry before it is sanded (the next operation), but the current setup does not allow sufficient room for this to happen every time. After the panel is sanded down, it travels up to the second floor again, where it is inspected for any major repairs that must be made. If repairs are needed, the panel is taken off the conveyor; otherwise, it moves on to the washer, where any dust and debris is removed. The conveyor then moves the panel up to the third floor to the second prime spray booth and back down to the second floor, where it is processed through an oven. The panel is inspected again, and the pit fill and sand operations are performed as necessary. Again, the area currently allocated to this operation does not always allow the compound enough time to dry. The conveyor moves the panels to final inspection and to the packing area. Once the panels are packed, they must be moved via elevator to the first floor, where the shipping docks are located. There is only one elevator, and if it malfunctions, there is no way to transport the parts to the first floor. The existing system is producing good quality front-end panels, but the current arrangement requires that the conveyor travel frequently between three floors and separates two similar operations, requiring two supervisors. The finished and packed parts must also be moved from the second floor packing area down to the first floor with an elevator. In addition, the repair and maintenance for the conveyor system will require an estimated $180,000 in the upcoming year alone in order to keep it in operable condition. Projected maintenance costs for later years are unavailable but they are estimated to be around $100,000 per year. 3 3 The Proposed System The proposed system would be a modification of the current prime and finish conveyor system. It would reduce the number of trips made between floors, use just one supervisor to oversee similar operations, eliminate the need for the elevator, and reduce the number of employees needed for the prime and finish operation. The proposed system under would still be used to move the panels along a specified route while different operations are performed on them. The major change is that almost all of the major operations would be performed on the second floor. The areas needed for the two pit fill and sanding operations would be located in the same general area, thus requiring only one supervisor; the result should be better control of and more uniform standards for those operations. There would be more room between the pit filling station and the sanding operation so the compound would have an adequate amount of time to dry, resulting in better quality. A sanding station for hood line sanding would be added after the stud driver machines in the proposed process. (The hood line is where the front-end panel meets the hood of the car{an area very visible to the consumer.) In an effort to improve quality, it has been determined that this job should receive careful attention and be performed before the initial priming process. The inspectors associated with the pit filling operations would be eliminate in the proposed process, leaving that job to the pit fillers themselves. The major repair area would be relocated so that it would be near the final inspection point and repaired parts could easily be sent through the second priming station again. After the final inspection, the conveyor would carry the panels down to the first floor to be packed and shipped. This would completely eliminate the need for the elevator and facilitate a steady material flow. The proposed system would be designed and built to satisfy ergonomic considerations. So jobs would be easier to perform, and the number of required employees would be reduced. Also, the inspection stations would be minimized, which would further reduce the total number of employees needed for the prime and finish operation. The question is, will the savings that would be derived from the reduction in labor justify the cost of the proposed system? 3.1 Site preparation Before installation of the new system, the old equipment must be removed, rearranged, and painted. This site preparation would be done by the in house staff at the cost of $337,000. The firm could elect to expense the preparation cost at the time the new system is installed. Some of the existing machines would be relocated, but all would be retained in the new system; thus there would be no replacement of equipment. 3.2 Cost of New Equipment The proposed system requires a new conveyor, a drive, and a new sanding machine to be located near the first prime area. The cost for purchasing and installing the new equipment is estimated at $598,000. (The installation would take place during the regularly scheduled plant maintenance period, so that no shut down costs are expected.) It also requires an increase in net working capital, 4 costing $85,000. This additional working capital must be considered part of the initial net cash outlay, but it can be recovered in full at the time of project closing. The economic life of this new system is not precisely known, but the firm's past experience with this type of equipment indicates that the system has about 10 years of useful life, even though the physical life could easily extend almost 20 years with proper maintenance. Since automobile models are changing from a conventional to a more aero-dynamic look, however, the BOC plant is planning to install an entirely new system within 5 years. Therefore, BOC management would not expect the modified system to serve more than 5 years if installed. The purchased equipment falls in the 7-year MACRS category, with no investment tax credit allowed. The depreciation for each year over the study period is calculated as follows: -Year Depreciation base x MACRS rate Depreciation 1 598,000 x (.1429) = 85,454 2 598,000 x (.2449) = 146,450 3 598,000 x (.1749) = 104,590 4 598,000 x (.1249) = 74,690 5 598,000 x (.0892) = 53,342 Total = $464,526 This adds up to $464,526, leaving a book value of $133,474 at the end of 5 years. The salvage value of this system after 5 years is also in question, but it is estimated that the value of the scrap and used parts taken off the system at the end of 5 years would not be large enough to offset the cost of dismantling and scrapping the system, resulting in a negative salvage value of about $80,000. 3.3 Expected Cash Savings The savings involved in this project will come from the reduction of 17 employees from the process. These employees will all be hourly production workers working one of three shifts (day, afternoon, or midnight). The BOC plant uses an average figure for employee wages when computing the cost associated with workers. This figure, the average annual straight time and overtime cost," is $47,362/year for hourly production workers. We thus find an annual savings of (17employees) X ($47,362/employee/year) = $805,154/year 3.4 Operating and Maintenance Costs The additional operating and maintenance costs associated with the modified system are estimated to be: 5 -Additional Year O&M costs ($) 1 18,220 2 17,000 3 18,500 4 31,500 5 21,500 The increased costs are primarily due to additional power requirements in the sanding operation. The trend in operating costs over the project years reflects the inclusion of an allowance for startup inefficiencies in the first year, cash expenditures for overhauling expenses in the fourth year, and a gradual loss of operating efficiency thereafter. 3.5 Other Considerations Another factor for the BOC to consider at this time is the alternative uses for funds. The BOC has sufficient funds to modify the current operating system; however there are other ways these funds could be used. The other projects the management is considering at this time have an estimated return of at least 15% after taxes. This implies that the BOC's MARR would be 15%. (The marginal income tax rate at present is 40% and no change in this rate is expected.) Issues for Consideration 1. Determine the project’s feasibility for the 5-year life of the proposed conveyor system. 2. Suppose that, to install the proposed conveyor system, there would be a 2-day's of plant shutdown. This translates into a cost of $350,000 in lost production. How should this shut-down cost be considered in the analysis? 3. Suppose that there is no place to accommodate the 17 workers in the plant and they must let go. This action would lead to paying $200,000 for severance. How would this payment affect the profitability of the investment? 4. Recall that the annual savings figures based on displacing 17 workers were assumed to remain unchanged over the years. Suppose that the wages would increase at the annual rate of 7% over the years, due to inflation. The annual O&M cost would also increase at the annual rate of 6%. 6 Five Year Analysis ❖ ALTERNATIVE A: Keep same equipment -Repair & Maintenance Costs 180,000 1st year 400,000, 4 years $580,000 -Employee Wages Using 7% Rate (17 Employees) F= 805,154 (F/A, 7%,5) = $4,630,441 Total Cost = 580,000 + 4,630,441 = $5,210,441 ❖ ALTERNATIVE B: Modify Equipment -Installation Cost= $598,000 -Old Equipment Removal Cost= $337,000 -Operating and Maintenance Cost After using 6% rate and on the yearly values from Section 3.2 and adding them up: YEAR 1 2 3 4 5 Total Annual Amount 6% 17000 (1.060) 18500(1.060) 31500(1.060) 21500(1.060) 18,220 18,020 19,610 33,390 22,790 112,030 O & M costs = $112,030 -Book and Salvage Value After using the Year Depreciation base x MACRS rate Depreciation analysis, the book value computed is $133,474. 7 Salvage value: “Is estimated that the value of the scrap and used parts taken off the system at the end of 5 years would not be large enough to offset the cost of dismantling and scrapping the system, resulting in a negative salvage value of about $80,000”. Total Savings = $133,474 - $80,000= $53,474 -Employee Wages (Reduction of 17 employees) Cost = $0 -Final Cost Cost = 598,000+ 337,000 + 112,030 - $53,744= $993,556 -CASH FLOW 4,683,915 = $3,363,884 935,000 18,220 18,020 19,610 33,390 22,790 Consideration Analysis Even with a 2 day plant shut down cost of $350,000 and a $200,000 cost for severance, the total for modifying the equipment would be $1,543,556. 8 -Break-Even Analysis For BOC’s MAAR of at least 15% -At 15% Using the P/F values From Appendix C Cost = Benefit 1,047,030=805,154 (0.8696) + 805,154 (0.7561) + 805,154 (0.6575 + 805,154 (0.5718) + 805,154 (0.4972) $ 1,047,030 = $2, 699, 037 Being the benefit 2.5 times higher than the cost, it shows that the minimum of 15% MAAR is satisfied. After a few trial and error calculations, the Rate of Return turned out to be 65%, approximately. Note: It is assumed that the company will try to keep those employees and relocated them to another area and spend money on their yearly wages. But this case study only focus on that conveyor belt section area of the company, therefore, when analyzing alternatives A and B; it is assumed that the company will either have an employee wage cost (Alternative A) or not have that cost (Alternative B). CONCLUSION After reviewing the analysis, the calculations clearly show that modifying the equipment would create a savings amount of $3.36 Million. This amount is mainly due to the fact that the company will save money on employee yearly wages for five years because the proposed modification will require seventeen less employees. The Rate of Return for this case study is 65%, about 4 times more than the 15% MAAR requirement. This makes this proposed modification a good investment. The proposed new system will also produce better quality parts by providing more time for them to dry during the manufacturing process. In conclusion, my recommendation is to choose option B, modify the system, in order to save $3.36 million in a five year period and create products of higher quality and efficiency for the consumers. 9
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