I. INTRODUCTION.pdf

CHAPTER 01 INTRODUCTION TO ENGINEERING ECONOMICS CE214 - ENGINEERING ECONOMICS ENGR. CHRISTINE JOYCE C. ROSETE INSTRUCTOR ENGINEERING ECONOMICS Course Description: Concepts of the time value of money and equivalence; basic economy study methods; decisions under certainty; recognizing risk; and d...

CHAPTER 01 INTRODUCTION TO ENGINEERING ECONOMICS CE214 - ENGINEERING ECONOMICS ENGR. CHRISTINE JOYCE C. ROSETE INSTRUCTOR ENGINEERING ECONOMICS Course Description: Concepts of the time value of money and equivalence; basic economy study methods; decisions under certainty; recognizing risk; and decisions admitting uncertainty. No. of Units: 3 Lecture Units Prerequisite: 2nd Year Standing At the end of the course, the students must be able to: Grading Scheme: 1. Solve problems involving interest and the time value 20% Preliminary Examination 25% Midterm Examination of money; 25% Final Examination 2. Evaluate project alternatives by applying engineering 20% Quizzes economic principles and methods and select the most 5% Problem Sets economically ef cient one; and 5% Attendance______________ 3. Deal with risk and uncertainty in project outcomes by Total: 100% applying the basic economic decision making concepts. Passing: 75% CHAPTER O1 INTRODUCTION TO ENGINEERING ECONOMICS INSTRUCTOR CE 214 - ENGINEERING ECONOMICS ENGR. CHRISTINE JOYCE C. ROSETE fi INTRODUCTION ENGINEERING ECONOMY is the analysis and evaluation of the factors that will affect the economic success of engineering projects to the end that a recommendation can be made which will insure the best of capital. Simple Interest Amortization Compound interest Depreciation Effective Rate of Interest Capital Financing Discount Rate of Return Annuity Break even analysis Capitalized Cost Benefit Cost Ratio CHAPTER O1 INTRODUCTION TO ENGINEERING ECONOMICS INSTRUCTOR CE 214 - ENGINEERING ECONOMICS ENGR. CHRISTINE JOYCE C. ROSETE INTRODUCTION Capital - any money or property that you can Exact Simple Interest - computed based on use to produce more wealth. exact no. of days 1 year = 365 days ( Ordinary year) Interest - amount of money earned by a given 1 year = 366 days ( leap year) capital. Simple Interest - interest directly proportional Compound Interest - interest is computed to the length of time and the amount of principal every each interest period and the interest borrowed. earned for that period is added to the principal. Ordinary Simple Interest - computed on the basis of one banker’s year 1 banker’s year = 12 months ( 30 days each) = 360 days CHAPTER O1 INTRODUCTION TO ENGINEERING ECONOMICS INSTRUCTOR CE 214 - ENGINEERING ECONOMICS ENGR. CHRISTINE JOYCE C. ROSETE INTRODUCTION Nominal Rate of Interest - periodic interest Annuity - a series of equal payments occurring rate times the number of periods per year. at equal periods of time. Effective Rate of Interest - actual rate of Capitalized Cost - the present worth of a interest on the principal for one year. constant annual cost over an infinite analysis period. Discount - a single sum of money in the future Amortization - an accounting technique used can be converted to an equivalent present to periodically lower the book value of a loan or single sum of money, knowing the interest rate an intangible asset over a set period of time. and the time. CHAPTER O1 INTRODUCTION TO ENGINEERING ECONOMICS INSTRUCTOR CE 214 - ENGINEERING ECONOMICS ENGR. CHRISTINE JOYCE C. ROSETE INTRODUCTION Depreciation - a measure of the decrease in Break even analysis- the point at which total the market value of an asset over time from costs and total revenue are equal. influential economic factors. Capital Financing - the process of raising Benefit cost ratio- an indicator, used in cost– funds to support a business's operations. benefit analysis, that attempts to summarize the overall value for money of a project or proposal. Rate of Return - the profit from an investment divided by the initial investment, typically expressed as a percentage. CHAPTER O1 INTRODUCTION TO ENGINEERING ECONOMICS INSTRUCTOR CE 214 - ENGINEERING ECONOMICS ENGR. CHRISTINE JOYCE C. ROSETE PRINCIPLES OF ENGINEERING ECONOMY 1. Develop Alternatives 2. Focus on the differences 3. Hold same view point 4. Use common units of measure 5. Use all relevant criteria 6. Make uncertainty very explicit 7. Review/revisit your decisions CHAPTER O1 INTRODUCTION TO ENGINEERING ECONOMICS INSTRUCTOR CE 214 - ENGINEERING ECONOMICS ENGR. CHRISTINE JOYCE C. ROSETE PRINCIPLES OF ENGINEERING ECONOMY 1. Develop Alternatives The principle refers to the process of identifying and evaluating different options or courses of action in order to choose the most suitable one. CHAPTER O1 INTRODUCTION TO ENGINEERING ECONOMICS INSTRUCTOR CE 214 - ENGINEERING ECONOMICS ENGR. CHRISTINE JOYCE C. ROSETE PRINCIPLES OF ENGINEERING ECONOMY 1. Develop Alternatives CHAPTER O1 INTRODUCTION TO ENGINEERING ECONOMICS INSTRUCTOR CE 214 - ENGINEERING ECONOMICS ENGR. CHRISTINE JOYCE C. ROSETE PRINCIPLES OF ENGINEERING ECONOMY 2. Focus on the Differences The principle relates to the concept that while comparing options, it is vital to consider their differences rather than their similarities. CHAPTER O1 INTRODUCTION TO ENGINEERING ECONOMICS INSTRUCTOR CE 214 - ENGINEERING ECONOMICS ENGR. CHRISTINE JOYCE C. ROSETE PRINCIPLES OF ENGINEERING ECONOMY 2. Focus on the Differences CHAPTER O1 INTRODUCTION TO ENGINEERING ECONOMICS INSTRUCTOR CE 214 - ENGINEERING ECONOMICS ENGR. CHRISTINE JOYCE C. ROSETE PRINCIPLES OF ENGINEERING ECONOMY 3. Use a Consistent Viewpoint The principle refers to the idea that when evaluating different alternative, it is important to use the same perspective or frame of reference in order to make fair and accurate comparisons. CHAPTER O1 INTRODUCTION TO ENGINEERING ECONOMICS INSTRUCTOR CE 214 - ENGINEERING ECONOMICS ENGR. CHRISTINE JOYCE C. ROSETE PRINCIPLES OF ENGINEERING ECONOMY 3. Use a Consistent Viewpoint CHAPTER O1 INTRODUCTION TO ENGINEERING ECONOMICS INSTRUCTOR CE 214 - ENGINEERING ECONOMICS ENGR. CHRISTINE JOYCE C. ROSETE PRINCIPLES OF ENGINEERING ECONOMY 4. Use a Common Unit of Measurement The principle refers to the idea that when evaluating different alternatives, it is important to use a consistent unit of measurement in order to make fair and accurate comparisons. CHAPTER O1 INTRODUCTION TO ENGINEERING ECONOMICS INSTRUCTOR CE 214 - ENGINEERING ECONOMICS ENGR. CHRISTINE JOYCE C. ROSETE PRINCIPLES OF ENGINEERING ECONOMY 4. Use a Common Unit of Measurement CHAPTER O1 INTRODUCTION TO ENGINEERING ECONOMICS INSTRUCTOR CE 214 - ENGINEERING ECONOMICS ENGR. CHRISTINE JOYCE C. ROSETE PRINCIPLES OF ENGINEERING ECONOMY 5. Consider all Relevant Criteria The principle refers to the idea that when evaluating different alternatives, it is important to consider all factors that are relevant to the decision in order to make an informed and well-rounded choice. CHAPTER O1 INTRODUCTION TO ENGINEERING ECONOMICS INSTRUCTOR CE 214 - ENGINEERING ECONOMICS ENGR. CHRISTINE JOYCE C. ROSETE PRINCIPLES OF ENGINEERING ECONOMY 5. Consider all Relevant Criteria CHAPTER O1 INTRODUCTION TO ENGINEERING ECONOMICS INSTRUCTOR CE 214 - ENGINEERING ECONOMICS ENGR. CHRISTINE JOYCE C. ROSETE PRINCIPLES OF ENGINEERING ECONOMY 6. Make Uncertainty Explicit The principle relates to the idea that it is critical to acknowledge and account for any uncertainty or uncertainty in the data or assumptions used in the analysis while evaluating different alternatives. CHAPTER O1 INTRODUCTION TO ENGINEERING ECONOMICS INSTRUCTOR CE 214 - ENGINEERING ECONOMICS ENGR. CHRISTINE JOYCE C. ROSETE PRINCIPLES OF ENGINEERING ECONOMY 6. Make Uncertainty Explicit CHAPTER O1 INTRODUCTION TO ENGINEERING ECONOMICS INSTRUCTOR CE 214 - ENGINEERING ECONOMICS ENGR. CHRISTINE JOYCE C. ROSETE PRINCIPLES OF ENGINEERING ECONOMY 7. Review/ Revisit your Decision The principle refers to the idea that it is important to periodically review and assess your decisions in order to ensure that they are still relevant and appropriate given any changes in the circumstances. CHAPTER O1 INTRODUCTION TO ENGINEERING ECONOMICS INSTRUCTOR CE 214 - ENGINEERING ECONOMICS ENGR. CHRISTINE JOYCE C. ROSETE PRINCIPLES OF ENGINEERING ECONOMY 7. Review/Revisit your Decision CHAPTER O1 INTRODUCTION TO ENGINEERING ECONOMICS INSTRUCTOR CE 214 - ENGINEERING ECONOMICS ENGR. CHRISTINE JOYCE C. ROSETE ENGINEERING ECONOMY AND THE DESIGN PROCESS Engineering Economic Analysis Procedure Engineering Design Process Steps: Activity: 1. Problem recognition, de nition, and evaluation 1. De ne the problem 2. Development of the feasible alternatives 2. Generate ideas 3. Development of the outcomes and cash ow for 3. Evaluate Alternatives each alternative. 4. Selection of a criterion 4. Select the best solution 5. Analysis and comparison of the alternatives. 5. Implement the Solution 6. Selection of the preferred alternatives. 7. Performance monitoring and post monitoring results. CHAPTER O1 INTRODUCTION TO ENGINEERING ECONOMICS INSTRUCTOR CE 214 - ENGINEERING ECONOMICS ENGR. CHRISTINE JOYCE C. ROSETE fi fi fl ENGINEERING ECONOMY AND THE DESIGN PROCESS ENGINEERING ECONOMIC ANALYSIS PROCEDURE Problem recognition, definition, and evaluation. Problem must be well understood and stated in an explicit form before project team proceeds with the rest of the analysis. Development of the feasible alternatives. Searching for potential alternatives (creativity and resourcefulness), screening them to select a smaller group of feasible alternatives for detailed analysis. Development of the outcomes and cash flows for each alternative. Cash flow approach (revenue and payments), non-monetary factors e.g. meeting or exceeding customer expectations, safety to employees, employees satisfaction, etc. CHAPTER O1 INTRODUCTION TO ENGINEERING ECONOMICS INSTRUCTOR CE 214 - ENGINEERING ECONOMICS ENGR. CHRISTINE JOYCE C. ROSETE ENGINEERING ECONOMY AND THE DESIGN PROCESS ENGINEERING ECONOMIC ANALYSIS PROCEDURE Selection of a criterion. Long-term interest of the client and the organization, environment concerns, etc. Analysis and comparison of the alternatives. Based on cash flows, exchange rate, inflation, regulatory, etc. Selection of the preferred alternatives. A result of the total effort of the above mentioned 5 steps. It is the technical-economic modeling. Performance monitoring and post monitoring results. Accomplished during and after the time that the result achieved. The aim of post evaluation is to learn how to do better the job. CHAPTER O1 INTRODUCTION TO ENGINEERING ECONOMICS INSTRUCTOR CE 214 - ENGINEERING ECONOMICS ENGR. CHRISTINE JOYCE C. ROSETE ENGINEERING ECONOMY AND THE DESIGN PROCESS DESIGN PROCESS IN AN ENGINEERING ECONOMY Define the problem. The first step is to clearly define the problem that needs to be solved. Generate Ideas. for potential solutions to the problem. Evaluate Alternatives. once a range of potential solutions has been identified, the next step is to evaluate the alternatives based on their costs and benefits. Select the best solution. Choose the most cost-effective solution. Implement the Solution. Once the best solution has been chosen, the final step is to implement it. CHAPTER O1 INTRODUCTION TO ENGINEERING ECONOMICS INSTRUCTOR CE 214 - ENGINEERING ECONOMICS ENGR. CHRISTINE JOYCE C. ROSETE KEY CONCEPTS IN ENGINEERING ECONOMY 1. Time and Value of Money. This concept states that the value of a given amount of money changes over time due to inflation and the opportunity cost of not investing the money elsewhere. 2. Net Present Value (NPV). This is a measure of the profitability of an investment, calculated by taking the present value of the expected cash flows and subtracting the initial investment. 3. Internal Rate of Return (IRR). This is the discount rate that makes the NPV of an investment equal to zero. It is used to compare the profitability of different investments. 4. Benefit-Cost Ratio (BCR). This is the ratio of the benefits of an investment to its costs. A BCR greater than 1 indicates that the investment is financially viable. 5. Demand and Supply. Are free market economic principles or forces that govern what producers want to produce and what buyers want to buy and pay for. CHAPTER O1 INTRODUCTION TO ENGINEERING ECONOMICS INSTRUCTOR CE 214 - ENGINEERING ECONOMICS ENGR. CHRISTINE JOYCE C. ROSETE COST CONCEPTS There are a variety of costs to be considered in a engineering economic analysis These cost differ in their: frequency of occurence, relative magnitude and degree of impact on the study. CHAPTER O1 INTRODUCTION TO ENGINEERING ECONOMICS INSTRUCTOR CE 214 - ENGINEERING ECONOMICS ENGR. CHRISTINE JOYCE C. ROSETE ENGINEERING COST CONCEPTS ECONOMY AND THE DESIGN PROCESS FIXED/ VARIABLE COST If costs change appreciably with fluctuations in business activity, they are “ variable.” Otherwise, they are “fixed”. A widely used cost model is: Total Costs = Fixed Costs + Variable Costs CHAPTER O1 INTRODUCTION TO ENGINEERING ECONOMICS INSTRUCTOR CE 214 - ENGINEERING ECONOMICS ENGR. CHRISTINE JOYCE C. ROSETE ENGINEERING COST CONCEPTS ECONOMY AND THE DESIGN PROCESS FIXED/ VARIABLE COST Fixed Costs: are those unaffected by changes in activity level over a feasible range of operations for the capacity or capability available. Some example of fixed costs: insurance, taxes on facilities, rental payments and initial setup or installation cost. Variable Costs: are those associated with operation that varies in total with the quantity or other measures of activity level. Some examples of variable costs: direct labor, direct material , per unit transportation. CHAPTER O1 INTRODUCTION TO ENGINEERING ECONOMICS INSTRUCTOR CE 214 - ENGINEERING ECONOMICS ENGR. CHRISTINE JOYCE C. ROSETE ENGINEERING COST CONCEPTS ECONOMY AND THE DESIGN PROCESS INCREMENTAL COSTS Incremental Costs: is the additional cost that results from increasing the output of a system by one (or more) units. CHAPTER O1 INTRODUCTION TO ENGINEERING ECONOMICS INSTRUCTOR CE 214 - ENGINEERING ECONOMICS ENGR. CHRISTINE JOYCE C. ROSETE ENGINEERING COST CONCEPTS ECONOMY AND THE DESIGN PROCESS RECURRING/NONRECURRING COSTS If costs are repetitive and occur when an organization produces goods or services on a continuing basis, they are “ recurring”. Otherwise they are “nonrecurring” Variable Costs are recurring since they repeat with each unit of output. CHAPTER O1 INTRODUCTION TO ENGINEERING ECONOMICS INSTRUCTOR CE 214 - ENGINEERING ECONOMICS ENGR. CHRISTINE JOYCE C. ROSETE ENGINEERING COST CONCEPTS ECONOMY AND THE DESIGN PROCESS DIRECT/INDIRECT COSTS Direct Costs :If costs can be reasonably measured and allocated to a specific output, they are “direct”. Otherwise they are “indirect”. For example, the materials needed to make a product specific packaging would be a direct cost Indirect Costs: are costs that are difficult to allocate to specific output or work activities. For example, the costs of common tools, general supplies, and equipment maintenance in a plant are treated as indirect costs. CHAPTER O1 INTRODUCTION TO ENGINEERING ECONOMICS INSTRUCTOR CE 214 - ENGINEERING ECONOMICS ENGR. CHRISTINE JOYCE C. ROSETE ENGINEERING COST CONCEPTS ECONOMY AND THE DESIGN PROCESS OVERHEAD COSTS Overhead Costs: Overhead consists of plant operating costs that are not direct labor or direct material costs. In this, the term indirect cost, overhead, and burden are used interchangeably. Examples of overhead include electricity, general repairs, property taxes, and supervision. CHAPTER O1 INTRODUCTION TO ENGINEERING ECONOMICS INSTRUCTOR CE 214 - ENGINEERING ECONOMICS ENGR. CHRISTINE JOYCE C. ROSETE ENGINEERING COST CONCEPTS ECONOMY AND THE DESIGN PROCESS STANDARD COSTS Standard Costs: are planned costs per unit of output that are established in advance of actual production or service delivery. CHAPTER O1 INTRODUCTION TO ENGINEERING ECONOMICS INSTRUCTOR CE 214 - ENGINEERING ECONOMICS ENGR. CHRISTINE JOYCE C. ROSETE ENGINEERING COST CONCEPTS ECONOMY AND THE DESIGN PROCESS CASH COSTS Cash Costs: involves payment and actual transfer of funds. For example, form of cash, cheque, wire transfer , etc. CHAPTER O1 INTRODUCTION TO ENGINEERING ECONOMICS INSTRUCTOR CE 214 - ENGINEERING ECONOMICS ENGR. CHRISTINE JOYCE C. ROSETE ENGINEERING COST CONCEPTS ECONOMY AND THE DESIGN PROCESS BOOK COSTS Book Costs: reflected only in the accounting system. It is a cost that does not involve cash transaction and is reflected in the accounting system as a non-cash cost. This non-cash cost is often refereed to as a book cost. CHAPTER O1 INTRODUCTION TO ENGINEERING ECONOMICS INSTRUCTOR CE 214 - ENGINEERING ECONOMICS ENGR. CHRISTINE JOYCE C. ROSETE ENGINEERING COST CONCEPTS ECONOMY AND THE DESIGN PROCESS SUNK COSTS Sunk Costs: past costs that are unrecoverable and may not be relevant for decision making purposes. CHAPTER O1 INTRODUCTION TO ENGINEERING ECONOMICS INSTRUCTOR CE 214 - ENGINEERING ECONOMICS ENGR. CHRISTINE JOYCE C. ROSETE ENGINEERING ECONOMY AND THE DESIGN PROCESS PRESENT ECONOMY STUDIES Present economy studies are engineering economic analyses where alternatives for accomplishing a specific task are being compared over one year or less and the influnce of time on money can be ignored. Two rules shall be followed in conducting present economy studies. These rules, or criteria, will be used to select the preferred alternative when defect-free output (yield) is variable or constant among the alternatives being considered. CHAPTER O1 INTRODUCTION TO ENGINEERING ECONOMICS INSTRUCTOR CE 214 - ENGINEERING ECONOMICS ENGR. CHRISTINE JOYCE C. ROSETE ENGINEERING PRESENT ECONOMY ECONOMY STUDIES AND THE DESIGN PROCESS PRESENT ECONOMY STUDIES RULE 1: When revenues and other economic benefits are present and vary among alternatives, choose the alternative that maximizes overall profitability based on the number of defect-free units of a product or service produced. RULE 2: When revenues and other economic benefits are NOT present or are constant among all alternatives, consider that minimizes total cost per defect-free unit of product or service output. CHAPTER O1 INTRODUCTION TO ENGINEERING ECONOMICS INSTRUCTOR CE 214 - ENGINEERING ECONOMICS ENGR. CHRISTINE JOYCE C. ROSETE ENGINEERING COST PRESENT CONCEPTS ECONOMY ECONOMY STUDIES AND THE DESIGN PROCESS SITUATIONS WHERE PRESENT ECONOMY STUDIES ARE INVOLVED MATERIAL SELECTION: Involves selection among materials available that will result in the most economic product and give the best results. SELECTION OF METHOD: Two or more different methods may give the same satisfactory results. Involves selection of the most economical way to accomplish operations. SELECTION OF DESIGN: The design to be selected must be suited for the work to be done with particular care being given to the one which will do the work with the utmost economy. CHAPTER O1 INTRODUCTION TO ENGINEERING ECONOMICS INSTRUCTOR CE 214 - ENGINEERING ECONOMICS ENGR. CHRISTINE JOYCE C. ROSETE ENGINEERING COST PRESENT CONCEPTS ECONOMY ECONOMY STUDIES AND THE DESIGN PROCESS SITUATIONS WHERE PRESENT ECONOMY STUDIES ARE INVOLVED SITE SELECTION: Cost relevant to selecting sites must be carefully considered ( land cost, construction cost of transporting equipment and materials.) PROFICIENCY OF WORKERS: Bear in mind that workers have varying efficiency and proficiency. Worker Proficiency can be translated into monetary values. ECONOMY OF TOOL AND EQUIPMENT MAINTENANCE: Consider the costs of acquiring tools and equipment and the costs of maintaining them. CHAPTER O1 INTRODUCTION TO ENGINEERING ECONOMICS INSTRUCTOR CE 214 - ENGINEERING ECONOMICS ENGR. CHRISTINE JOYCE C. ROSETE ENGINEERING COST PRESENT CONCEPTS ECONOMY ECONOMY STUDIES AND THE DESIGN PROCESS SITUATIONS WHERE PRESENT ECONOMY STUDIES ARE INVOLVED ECONOMY IN THE UTILIZATION OF PERSONNEL: Only certain number of personnel will lead to the highest productivity; increasing this number will not cause a proportional increase in productivity. CHAPTER O1 INTRODUCTION TO ENGINEERING ECONOMICS INSTRUCTOR CE 214 - ENGINEERING ECONOMICS ENGR. CHRISTINE JOYCE C. ROSETE ENGINEERING COST PRESENT CONCEPTS ECONOMY ECONOMY STUDIES Selection AND THE DESIGN of Material PROCESS A machine part to be machined may be made either from an alloy of aluminum or steel. There is an order for 8,000 units. Steel costs P3.80 per kg, while aluminum costs P8.70 per kg. If steel is used, the steel per unit weighs 110 grams; for aluminum, 30 grams. When steel is used, 50 units can be produced per hour; for aluminum, 80 units per hour with the aid of a tool costing P640, which will be useless after the 8,000 units are nished. The cost of the machine and operator is P10.80 per hour. If all other costs are identical, determine which material will be more economical. CHAPTER O1 INTRODUCTION TO ENGINEERING ECONOMICS INSTRUCTOR CE 214 - ENGINEERING ECONOMICS ENGR. CHRISTINE JOYCE C. ROSETE fi ENGINEERING COST PRESENT CONCEPTS ECONOMY ECONOMY STUDIES Selection AND THE DESIGN of Material PROCESS SOLUTION: DETERMINE THE COST PER PIECE STEEL ALUMINUM MATERIAL COST (110/1000)(3.80) =P 0.418 (30/1000)(8.70) =P 0.261 LABOR AND P 10.80/50 =0.216 P 10.80/80 =0.135 MACHINE TOOL ———- P 640/8000 =0.08 COST PER PIECE P 0.634 P 0.476 COST OF 8000 P 5,072 P 3,808 UNITS CHAPTER O1 INTRODUCTION TO ENGINEERING ECONOMICS INSTRUCTOR CE 214 - ENGINEERING ECONOMICS ENGR. CHRISTINE JOYCE C. ROSETE ENGINEERING COST PRESENT CONCEPTS ECONOMY ECONOMY STUDIES Selection AND THE DESIGN of Material PROCESS SOLUTION: ALUMINUM is cheaper. CHAPTER O1 INTRODUCTION TO ENGINEERING ECONOMICS INSTRUCTOR CE 214 - ENGINEERING ECONOMICS ENGR. CHRISTINE JOYCE C. ROSETE ENGINEERING COST PRESENT CONCEPTS ECONOMY ECONOMY STUDIES Selection AND THE DESIGN of Method PROCESS The ore of a gold mine in the Mountain Province contains, on the overage, 0.5 gram of gold per ton. One method of processing costs P1,650 per ton and recovers 93% of the gold, while another method costs only P1,500 per ton and recovers 81% of the gold. If gold can be sold at P8,500 per gran, which method is batter and by how much? CHAPTER O1 INTRODUCTION TO ENGINEERING ECONOMICS INSTRUCTOR CE 214 - ENGINEERING ECONOMICS ENGR. CHRISTINE JOYCE C. ROSETE ENGINEERING COST PRESENT CONCEPTS ECONOMY ECONOMY STUDIES Selection AND THE DESIGN of Method PROCESS SOLUTION: CONSIDER THE INCOME AND COST PER TON OF ORE: FIRST METHOD INCOME =0.93(0.50)(P8,500) =P 3,952.50 - COST = P 1,650 NET RECEIPT = P 2,302.50 CHAPTER O1 INTRODUCTION TO ENGINEERING ECONOMICS INSTRUCTOR CE 214 - ENGINEERING ECONOMICS ENGR. CHRISTINE JOYCE C. ROSETE ENGINEERING COST PRESENT CONCEPTS ECONOMY ECONOMY STUDIES Selection AND THE DESIGN of Method PROCESS SOLUTION: CONSIDER THE INCOME AND COST PER TON OF ORE: SECOND METHOD INCOME =0.81(0.50)(P8,500) =P 3,442.50 - COST = P 1,500 NET RECEIPT = P 1,942.50 CHAPTER O1 INTRODUCTION TO ENGINEERING ECONOMICS INSTRUCTOR CE 214 - ENGINEERING ECONOMICS ENGR. CHRISTINE JOYCE C. ROSETE ENGINEERING COST PRESENT CONCEPTS ECONOMY ECONOMY STUDIES Selection AND THE DESIGN of Method PROCESS SOLUTION: The FIRST METHOD of processing is better by P 360.00 CHAPTER O1 INTRODUCTION TO ENGINEERING ECONOMICS INSTRUCTOR CE 214 - ENGINEERING ECONOMICS ENGR. CHRISTINE JOYCE C. ROSETE ENGINEERING COST PRESENT CONCEPTS ECONOMY ECONOMY STUDIES Selection AND THE DESIGN of Design PROCESS A company manufactures 1,000,000 units of a product yearly. A new design of the product will reduce materials cost by 2%, but will increase processing cost by 2%. If materials cost is P1.20 per unit and processing will cost P0.40 per unit, how much can the company a ord to pay for the preparation of the new design and making changes in equipment? CHAPTER O1 INTRODUCTION TO ENGINEERING ECONOMICS INSTRUCTOR CE 214 - ENGINEERING ECONOMICS ENGR. CHRISTINE JOYCE C. ROSETE ff ENGINEERING COST PRESENT CONCEPTS ECONOMY ECONOMY STUDIES Selection AND THE DESIGN of Design PROCESS SOLUTION: THE MAXIMUM AMOUNT THE COMPANY SHOULD SPEND SHOULD NOT EXCEED THE SAVINGS THEY WILL MAKE ON THE NEW DESIGN. DECREASE IN MATERIALS = 1,000,000 (0.12) (P 1.20) = P 144,000 COST - INCREASE IN = 1,000,000 (0.02) (0.40) = 8,000 PROCESSING COST NET SAVINGS ON NEW = P 136,000 DESIGN CHAPTER O1 INTRODUCTION TO ENGINEERING ECONOMICS INSTRUCTOR CE 214 - ENGINEERING ECONOMICS ENGR. CHRISTINE JOYCE C. ROSETE ENGINEERING COST PRESENT CONCEPTS ECONOMY ECONOMY STUDIES Selection AND THE DESIGN of Design PROCESS SOLUTION: The net savings on new design is P 136,000 CHAPTER O1 INTRODUCTION TO ENGINEERING ECONOMICS INSTRUCTOR CE 214 - ENGINEERING ECONOMICS ENGR. CHRISTINE JOYCE C. ROSETE ENGINEERING COST PRESENT CONCEPTS ECONOMY ECONOMY AND THE DESIGNSite STUDIES Selection PROCESS A certain masonry dam requires 200,000 củ.m. of gravel for its construction. The contractor found two possible sources for the gravel with the following data: Source A Source B Average distance, gravel pit 3.0 km 1.2 km to dam site Gravel cost/cu.m at pit ——— P 10.00 Purchase price of pit P 800,000 ——— Road Construction necessary P 450,000 None Overburden to be remove at ——— 90,000 cu.m P4.20/cu.m Hauling Cost per cu.m per km P 4.00 P 4.00 CHAPTER O1 INTRODUCTION TO ENGINEERING ECONOMICS INSTRUCTOR CE 214 - ENGINEERING ECONOMICS ENGR. CHRISTINE JOYCE C. ROSETE ENGINEERING COST PRESENT CONCEPTS ECONOMY ECONOMY AND THE DESIGNSite STUDIES Selection PROCESS Which of the two sites will give lesser cost? SOLUTION: Cost of 200,000 cu.m of gravel, Source A Purchase price of gravel pit = P 800,000 Road Construction = 450,000 Hauling = 200,000(3 km)(P 4.00) = P 3,650,000 Total Cost = P 3,650,000 CHAPTER O1 INTRODUCTION TO ENGINEERING ECONOMICS INSTRUCTOR CE 214 - ENGINEERING ECONOMICS ENGR. CHRISTINE JOYCE C. ROSETE ENGINEERING COST PRESENT CONCEPTS ECONOMY ECONOMY AND THE DESIGNSite STUDIES Selection PROCESS Which of the two sites will give lesser cost? SOLUTION: Cost of 200,000 cu.m of gravel, Source B Cost of gravel at pit = = P 2,000,000 200,000(P10.00) Removal of overburden =90,000 = 378,000 (P 4.20) Hauling = 200,000(1.2km)(P 4.00) = P 960,000 Total Cost = P 3,338,000 CHAPTER O1 INTRODUCTION TO ENGINEERING ECONOMICS INSTRUCTOR CE 214 - ENGINEERING ECONOMICS ENGR. CHRISTINE JOYCE C. ROSETE ENGINEERING COST PRESENT CONCEPTS ECONOMY ECONOMY AND THE DESIGNSite STUDIES Selection PROCESS Which of the two sites will give lesser cost? SOLUTION: Source B is cheaper by P 312,000 CHAPTER O1 INTRODUCTION TO ENGINEERING ECONOMICS INSTRUCTOR CE 214 - ENGINEERING ECONOMICS ENGR. CHRISTINE JOYCE C. ROSETE  END OF PRESENTATION CHAPTER O1 INTRODUCTION TO ENGINEERING ECONOMICS INSTRUCTOR CE 214 - ENGINEERING ECONOMICS ENGR. CHRISTINE JOYCE C. ROSETE