To analyze the three companies (Ford, GMC, Chrysler) based on the provided data, we'll calculate the

following parameters individually for each company:

(a) P.V. ratio

(b) Contribution

(c) Break-Even Point

(d) Profit

(e) Margin of Safety

Let's calculate each parameter for each company:

1. **Ford:**

- Sales: $550,000

- Variable Cost: $600,000

- Fixed Cost: $425,000

(a) P.V. Ratio = (Sales - Variable Cost) / Sales

= (550,000 - 600,000) / 550,000

= -50,000 / 550,000

= -0.091 or -9.1% (Since it's negative, it means loss)

(b) Contribution = Sales - Variable Cost

= 550,000 - 600,000

= -50,000 (Loss)

(c) Break-Even Point (BEP) = Fixed Cost / (Sales price per unit - Variable cost per unit)

= 425,000 / (550,000 - 600,000)

= 425,000 / (-50,000)

= Not applicable (since BEP cannot be calculated for loss)

(d) Profit = Sales - Variable Cost - Fixed Cost

= 550,000 - 600,000 - 425,000

= -475,000 (Loss)
(e) Margin of Safety = (Actual Sales - Break Even Sales) / Actual Sales * 100%

= (550,000 - 0) / 550,000 * 100%

= 100%

2. **GMC:**

- Sales: $650,000

- Variable Cost: $725,000

- Fixed Cost: $250,000

(a) P.V. Ratio = (Sales - Variable Cost) / Sales

= (650,000 - 725,000) / 650,000

= -75,000 / 650,000

= -0.115 or -11.5% (Loss)

(b) Contribution = Sales - Variable Cost

= 650,000 - 725,000

= -75,000 (Loss)

(c) Break-Even Point (BEP) = Fixed Cost / (Sales price per unit - Variable cost per unit)

= 250,000 / (650,000 - 725,000)

= 250,000 / (-75,000)

= Not applicable (since BEP cannot be calculated for loss)

(d) Profit = Sales - Variable Cost - Fixed Cost

= 650,000 - 725,000 - 250,000

= -325,000 (Loss)

(e) Margin of Safety = (Actual Sales - Break Even Sales) / Actual Sales * 100%

= (650,000 - 0) / 650,000 * 100%

= 100%

3. **Chrysler:**
 - Sales: $725,000

- Variable Cost: $350,000

- Fixed Cost: $250,000

(a) P.V. Ratio = (Sales - Variable Cost) / Sales

= (725,000 - 350,000) / 725,000

= 375,000 / 725,000

≈ 0.517 or 51.7%

(b) Contribution = Sales - Variable Cost

= 725,000 - 350,000

= 375,000

(c) Break-Even Point (BEP) = Fixed Cost / (Sales price per unit - Variable cost per unit)

= 250,000 / (725,000 - 350,000)

= 250,000 / 375,000

≈ 0.667 or 66.7%

(d) Profit = Sales - Variable Cost - Fixed Cost

= 725,000 - 350,000 - 250,000

= 125,000

(e) Margin of Safety = (Actual Sales - Break Even Sales) / Actual Sales * 100%

= (725,000 - 375,000) / 725,000 * 100%

≈ 48.28%

Now, let's compile the data into a comparison table:

| Company | P.V. Ratio | Contribution | Break-Even Point | Profit | Margin of Safety |

|-----------|------------|--------------|------------------|----------|------------------|

| Ford | -9.1% | -$50,000 | N/A (Loss) | -$475,000| 100% |

| GMC | -11.5% | -$75,000 | N/A (Loss) | -$325,000| 100% |

| Chrysler | 51.7% | $375,000 | 66.7% | $125,000 | 48.28% |

**Conclusion:** Based on the analysis, Chrysler appears to be the preferable option as it has a positive
profit and a significant margin of safety compared to Ford and GMC, both of which are incurring losses.

**Q2. Analysis for Year 2020:**

Given:

- Sales in 2020 = $25,000

- Profit in 2020 = $2,500

**Profit Volume Ratio (P.V. Ratio):**

P.V. Ratio = (Profit / Sales) * 100%

= (2,500 / 25,000) * 100%

= 10%

**Fixed Cost:**

Fixed Cost = Total Cost - Variable Cost

= Total Profit - Profit

= $25,000 - $2,500

= $22,500

**Break Even Sales:**

Break Even Sales = Fixed Cost / P.V. Ratio

= $22,500 / 10%

= $225,000

**Company Profit when Sales is $55,000:**

Profit = (P.V. Ratio * Sales) / 100%

= (10% * $55,000) / 100%

= $5,500

**Sales when Profits are $7,500:**

Sales = (Profit * 100%) / P.V. Ratio

 = ($7,500 * 100%) / 10%

= $75,000

**Q3. Applications of Engineering Economy in Real World Scenario:**

Industry: Automotive Manufacturing

Engineering economy principles find widespread application in the automotive manufacturing industry.
Let's elaborate on some key areas:

1. **Cost Analysis in Product Development:** Engineering economy techniques are employed to

evaluate the cost-effectiveness of various design alternatives during product development. This involves
comparing the costs of materials, manufacturing processes, and assembly methods to optimize
production efficiency while meeting quality standards.

2. **Investment Appraisal for Capital Expenditure:** Automotive manufacturers frequently face

decisions regarding capital investments in new facilities, equipment, or technology upgrades.
Engineering economy methods such as net present value (NPV), internal rate of return (IRR), and
payback period analysis help assess the financial viability of these investments over their lifecycle.

3. **Supply Chain Management Optimization:** Engineering economy concepts are utilized to

streamline supply chain operations and minimize costs associated with procurement, transportation,
and inventory management. Techniques like economic order quantity (EOQ) and just-in-time (JIT)
inventory systems aid in balancing inventory holding costs against ordering and stockout costs.

4. **Life Cycle Costing:** Automotive companies consider the total cost of ownership over a product's
life cycle, including acquisition, operation, maintenance, and disposal costs. Life cycle costing
methodologies enable manufacturers to make informed decisions regarding product pricing, warranty
policies, and aftermarket services.

5. **Sustainability Analysis:** Engineering economy principles are increasingly applied to assess the
economic feasibility of sustainable practices in automotive manufacturing, such as adopting eco-friendly
materials, implementing energy-efficient processes, and reducing waste generation. Cost-benefit
analysis helps weigh the economic benefits of sustainability initiatives against their implementation
costs.

Charts and diagrams can visually represent the application of engineering economy in the automotive
industry:

- Cost comparison charts for different manufacturing processes.

- Cash flow diagrams illustrating the inflows and outflows associated with capital investments.

- Supply chain network diagrams depicting the flow of materials and information.

- Life cycle cost breakdowns showing cost distribution over a product's life stages.
- Sensitivity analysis graphs displaying the impact of key variables on investment decisions.