Republic of the Philippines

Mindanao State University - Iligan Institute of Technology

Department of Mechanical Engineering and Engineering Sciences
College of Engineering

Engineering Economy
Long Quiz 1

I. Fundamental Concepts and Definitions. ( 5 points each)

1. Make a comparison between engineering economy and economy.

Cite at least two major points for full credit.
2. State your view why it is said that to be a successful
engineer, one must have a solid background in engineering
economy. Cite at least two major points for full credit.
3. Make a comparison between engineering economic analysis and
engineering design process.
4. Make a comparison between classical brainstorming and nominal
group technique. Cite at least two advantages or disadvantages
for full credit.

II. Problem Solving. Show solutions orderly and neatly.

Situation 1

While studying for the engineering economy final exam, you and two friends
find yourselves craving a fresh pizza. You cant spare the time to pick up
the pizza and must have it delivered. Pick-Up-Sticks offers a 1-1/4-inch-
thick (including toppings), 20-inch square pizza with your choice of two
toppings for $15 plus 5% sales tax and a $1.50 delivery charge (no sales
tax on delivery charge). Freds offers the round, deep-dish Sasquatch,
which is 20 inches in diameter. It is 1-3/4 inches thick, includes two
toppings, and costs $17.25 plus 5% sales tax and free delivery.

1.1 What is the problem in this situation? Please state it in an

explicit and precise manner.
1.2 Systematically apply the seven principles of engineering
economy to the problem you have defined in Part (a).
1.3 Assuming that your common unit of measure is dollars (i.e.,
cost), what is the better value for getting a pizza based on the
criterion of minimizing cost per unit of volume?
1.4 What other criteria might be used to select which pizza to purchase?

Situation 2

The annual fixed costs for a plant are $100, 000.00, and the variable costs
are $140,000 at 70% utilization of available capacity, with net sales of
$280,000.

2.1 What is the breakeven point in units of production if the selling

price per unit is $40?
 2.2 What is the breakeven point in percentage of capacity if the
selling
price per unit is $40?

Situation 3

The fixed cost for a steam line per meter of pipe is $450X + $50 per year.
The cost for loss of heat from the pipe per meter is $4.8/X1/2 per year.
Here,
X represents the thickness of insulation in meters, and X is a continuous
design variable.

3.1 What is the optimum thickness of the insulation?

3.2 How do you know that the answer in Part (1) minimizes total
cost per year?
3.3 What is the basic trade-off being made in this problem?
3.4 Plot the curves for the fixed cost and variable cost
superimposed at X = 0, 0.25, 0.5, 0.75 and 1.0 m.

Situation 4

The cost of operating a large ship (CO) varies as the square of its
velocity (v); specifically, CO = knv2, where n is the trip length in miles
and k is a constant of proportionality. It is known that at 12 miles/hour,
the average cost of operation is $100 per mile. The owner of the ship wants
to minimize the cost of operation, but it must be balanced against the cost
of the perishable cargo (Cc), which the customer has set at $1,500 per
hour. The total cost (CT) is the sum of the cost of operating the ship and
the cost of perishable cargo.

4.1 Solve for the constant of proportionality

4.2 Set-up the equation for the total cost
4.3 What velocity should the trip be planned to minimize total cost?
4.4 How do you know that the answer in part (3) minimizes total cost?

Situation 5

One method for developing a mine containing an estimated 100,000 tons of

ore will result in the recovery of 62% of the available ore deposit and
will cost $23 per ton of material removed. A second method of development
will recover only 50% of the ore deposit, but it will cost only $15 per ton
of material removed. Subsequent processing of the removed ore recovers 300
pounds of metal from each ton of processed ore and costs $40 per ton of ore
processed. The recovered metal can be sold for $0.80 per pound.

5.1 Compute for the profit using the First Method

5.2 Compute for the profit using the Second Method.
5.3 How much is the difference of profit between the two methods.

Situation 6

An advertisement of an investment firm states that if you invest Php 500.00

in their firm today will get Php 1, 000.00 at the end of 4 years.

6.1 What nominal rate is implied if the interest is an ordinary simple

interest?
6.2 What nominal rate is implied if the interest is compounded quarterly?
6.3 What nominal rate is implied if the interest is compounded monthly?
(Draw the cash flow diagram for part 6.2 and 6.3)
Character is more important than intelligence for success.
Gilberte Beaux