Quiz Preparation

Have Quiz sheet ready. Title = QUIZ 12
» Name (L, F, MI),
» Today’s date 11/6/12,
» Lab day , time
» section number
1
Announcements

Competition is this Thursday (11/8). Meet in
Broun 125. Runs start at 7:00 p.m. Come early if
possible.

There is no lab activity this week except for the
competition.
2
Major Changes
No oral presentations. These will be
replaced by Quad Charts.
 All sections have the following three items
due by noon on 11/27:

» Quad Charts
» PDM 2
» Final design report
3
Quad Charts
Discussed in more detail next week
 Each team will prepare a Quad Chart
according to the format that will be
provided. Look for a forthcoming email &
posting on the public class website.
 Quad Chart score will substitute for the oral
presentation.

4
(Initial or Final) Quad Chart
Project Title
OBJECTIVES - METHODS
Insert Graphic Here
Photograph, artist’s rendering, flow chart,
or other graphic to convey the main
concept of the project; add minimal
•
Describe the new and unproven technology to be exploited.
•
•
From a technical perspective, why is this important to do now?
Describe how the research will be conducted and how the
technology will be tested (add scenarios, if applicable).
•
Project team, if appropriate.
•
Describe performance metrics to be met.
•
Describe project deliverables.
explanatory text if required.
APPLICATIONS - TRANSITION
•
•
•
•
•
•
Describe the maritime military value and operational improvement.
To whom is it important (e.g., potential military sponsor /user of the
capability)?
What is the intended application for the result (e.g.,
commercialization)?
Why is the effort important?
Anticipated or actual results.
Estimated Technology Readiness Level (TRL).
SCHEDULE & BUDGET
TASK
Jan
Feb
Mar
Apr
Cost
Task 1 (Describe)
Task 2
Substitute a simple Gantt chart
Task 3
showing timelines, milestones, and
Subcontracts
costs by work task.
Final Report
Admin
Etc.
Total
Insert date
Company: Acme Widgets Inc.
Contact: John Q. Public
Email: jqp@acme.com
Phone: 803.123.4567
Announcements

There is no final exam for this course.

Tuesday 11/27 will be our last meeting for
the course. There is no lab that week after
the lecture.

Course evaluations are performed online.
7
Announcements

For lecture meetings 13 and 14, prepare ahead by
(a) reading Chapter 19 and (b) thinking about
ethical issues you have dealt with.
8
Final Design Report

Similar to Preliminary Design Report
» Based on FINAL design
» Follow the format on the class website, and
incorporate the feedback I provided on your
preliminary report.

Describe alternatives considered

Justify your design decisions
» Use quantitative data if possible
9
Rubrics

A rubric is an explicit set of criteria used
for assessing a particular type of work or
performance.

Oral and Written Report Rubrics are on
class website.
10
Financial Engineering
Recent feedback from E&CE Industrial
Advisory Board:
“Every E&CE graduate needs to understand
engineering economics.”
 Important part of professional engineer
license -- Fundamentals of Engineering
exam
 INSY 3600 – Engineering Economy

11
Financial Engineering

Accounting
» Recording and summarizing financial
transactions
» Cost accounting

Engineering economy
» Economic analysis used to make decisions that
have effects on current and future financial
transactions
12
Economic Decision-Making
If and when should a piece of equipment,
facility, or process be replaced?
 Is one machine or process more economical
than another?
 Is a specific product profitable in the longrun?
 Which products should be stored in
inventory and where?

13
Accounting
Asset = anything of monetary value
 Liability = debt that the company owes
 Net worth = ownership interest in the
company = capital stock + retained earnings
 Revenue = income due to the sale of a
product or service
 Expense = expenditure for operations

14
Accounting

Balance sheet
– Assets, liabilities, net worth

Income statement
– Revenues, expenses, net profit
15
Cost Accounting

Variable costs
» Direct material
» Direct labor

Fixed costs (overhead)
» Equipment, facility, tooling
» Cost allocation
– Based on variable cost
– Based on activity
16
Cost Accounting Example

Part A (a PC motherboard) requires:
» one hour of labor @ $40/hr.
» $50 in parts.

Part B (a smartphone board) requires:
» 0.2 hours of labor @ $40/hr.
» $35 in parts.


Both parts use the production machinery costing
$80,000,000 50% of the time.
100,000 of Part A and 500,000 of Part B are made.
17
Variable Costs

Part A:
» $50+$40=$90 per part
» 90*100,000 = $9M total variable cost

Part B:
» 0.2*($40)+$35=$43 per part
» 43*500,000 = $21.5M total variable cost
18
Fixed Costs

Usual approach is % allocation of variable costs:
» Part A % = (Part A variable)/(Total variable) =9/30.5= 29.5%
» Part B % = (Part B variable)/(Total variable) = 21.5/30.5=70.5%

Fixed costs on this basis:
» Part A = 0.295*$80M = $23.6M
» Part B = 0.705*$80M = $56.4M

This is not a very good estimate of actual cost,
since both parts use the machine 50%.
19
Activity-Based Costing

Allocate costs based on actual use:

In the previous example, split the fixed cost of the
machine 50/50, since both parts use the machine
equally:

Total costs:
» Part A = $9M + $40M = $49M
» Part B = $21.5M + $40M = $61.5M
20
Unit Costs

Unit cost = Total cost/ # of units
» Activity-based costing
– Part A unit cost = $49M/100,000 = $490
– Part B unit cost = $61.5M/500,000 = $123
» Percent of variable costs
– Part A unit cost = $32.6M/100,000 = $326
– Part B unit cost = $77.9M/500,000 = $156

There are some tricky aspects of this -- what if
machine had to be purchased for one part
regardless?
21
Time Value of Money

Would you rather have $100,000 now or
$104,000 a year from now?

Is it cheaper to replace a labor-intensive
process with an automated one?

Is it cheaper to buy or lease a piece of
equipment?
22
Time Value of Money
P = present value
 F = future value
 A = total payment spread evenly over n years
 i = annual interest rate (rate of return)
 n = number of years

23
Cash Flow Diagram
Income
1,000
1,000
0
1,000
40,000
3
1
8,000
4
2
i = 6%
5
4,000
Expenditures
24
Time Value

Single-payment compound amount
F  P(1  i)n

Present value of a future cash flow
P  F (1  i) n

Example: F=$1,000 i=6% n=1
» P=1000*(1+0.06)-1=$943
25
Cash Flow Diagram
i = 6%
1,000
1,000
0
40,000
3
1
8,000
1,000
4
2
5
4,000
$934
$890
-$3359
$792
$29890
$37147
26
Example

Rate of return is 12%; time horizon is 5 years:
1. Current manual process costs $10,000 per year.
2. Machine A costs $30,000 to purchase with $2,000 per
year operating cost. Salvage value at the end of five years
is zero.
3. Machine B costs $40,000 now and $1,000 per year to
operate. At the end of 5 years it will be worth $9,000.
27
Example
Simply adding up the cash flow values for
each alternative is not a valid comparison.
 Need to convert all dollars to same time for
valid comparison.
 Usually convert to present value (PV).

28
Example

Alternative 1: Net Present Value (NPV)
+0
+10,000*(1.12)-1
+10,000*(1.12)-2
+10,000*(1.12)-3
+10,000*(1.12)-4
+10,000*(1.12)-5
36,048
29
Example

Alternative 2: Net Present Value (NPV)
+30,000
+2,000*(1.12)-1
+2,000*(1.12)-2
+2,000*(1.12)-3
+2,000*(1.12)-4
+2,000*(1.12)-5
37,210
30
Example

Alternative 3: Net Present Value (NPV)
+40,000
+1,000*(1.12)-1
+1,000*(1.12)-2
+1,000*(1.12)-3
+1,000*(1.12)-4
+1,000*(1.12)-5
-9,000*(1.12)-5
38,498
31
Example Comparison
Alternative
1
2
3

Cash Flow
50,000
40,000
36,000
NPV
36,048
37,210
38,498
Conclusion: Alternative 1 has the best cash
flow but the worst NPV. Choose #3.
Excel File
32
Excel’s Financial Functions
FV( )
 NPV( )
 PV( )
 PMT( )

33
Quiz Preparation

Have Quiz sheet ready. Title = QUIZ 12
» Name (L, F, MI),
» Today’s date 11/6/12,
» Lab day , time
» section number
34
Quiz 12 (answers)
Quiz scoring: 3 points each answer, 25 points total
1. The usual method of converting all
dollars to the same time for valid
comparison is called net __present_ value
 2. Anything of monetary value is called a(n)
___asset___
 3. Anything debt the company owes is
called a(n) ___liability_____

35