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CE40 / B2

July 19, 2016

De Lara, Ricard Jand T.

ESE / 3

1. Economics - The theories, principles, and models that deal with how
the market process works. It attempts to explain how wealth is created and distributed
in communities, how people allocate resources that are scarce and have many
alternative uses, and other such matters that arise in dealing with human wants and
their satisfaction.
2. Engineering Economy - Is a subset of economics for application
to engineering projects. Engineers seek solutions to problems, and
the economic viability of each potential solution is normally considered along with the
technical aspects.
3. Engineering Analysis - Is the internal guidance of a project. It can be described as the
breaking down of an object, system, problem or issue into its basic elements to get at its
essential features and their relationships to each other and to external elements.
4. Father of Engineering Analysis Arthur M. Wellington
5. Father of Engineering Economy - Eugene L. Grant
6. Give Important uses of Engineering Economy

Seeking of new objectives for the application of engineering.

An important use of engineering economy is to seek new objectives for
engineering application.

Engineers all over the world are constantly seeking new and wider applications
of their technical knowledge for the benefit of mankind
Discovery of factors limiting the success of a venture or enterprise.
Knowing an objective, the next step is to determine ways and means to
attain such an objective.
Knowing an objective, the next step is to determine ways and means to
attain such an objective.

Analysis of possible investment of capital.

With the exception of a few cases, capital is invested to earn profit for the
owners of the capital.
Engineering Economy enables engineers to consider all aspects of the
investment from both the technical and financial viewpoints.
Engineering Economy furnishes several patterns of analysis to determine
rate of return, annual costs and payout periods, which all serve as bases
for decision.

Comparison of alternatives as a basis for decision.

Most anything that has to be done can be accomplished in many ways
with satisfactory end results, but with varying expenditures.
Usually the alternative that will accomplish the objective with the least
expense is the most desirable.

Determination of basis for decision.

The work of engineers is fundamentally concerned with future actions - on
what to do, not on what has been accomplished.
Decisions on future actions are more valid and their chances for accuracy
are improved when principles of Engineering Economy are correctly

7. What are engineering economy techniques that are use

The complete analysis of a proposed project involves three basic steps according to Bullinger,
as follows:
1) Economy Analysis

Considers all factors affecting the economy of the project which can be reduced to
specific monetary values.
Determines the initial cost of the project, the cost for operation and maintenance, the
needed working capital, the probable income the project will generate when operational,
the rate of return on the investment, and all other cost factors.

2) Financial Analysis

Determines the methods and sources of financing the project, either through equity
capital or borrowed capital, or a combination of both.
Tries to discover the best methods of financing the project to the extent of the amount
obtained in the economy analysis.

3) Intangible Analysis

Determines all aspects of the project which cannot be reduced to monetary values and
considers the uncertainty and the risk inherent in the project.
Its scope includes the so-called judgment factor whose analysis depends upon the
judgment of responsible persons involved in the project.

8. Engineering Economy procedures

An engineering economy study is accomplished using a structured procedure and
mathematical modeling techniques.
The economic results are then used in a decision situation that involves two or more
alternatives and normally includes other engineering knowledge and input.
Problem recognition, formulation, and evaluation.
Development of the feasible alternatives.
Development of cash flows for each alternative.
Selection of a criterion (or criteria).
Analysis and comparison of alternatives.
Selection of the preferred alternative.
7. Performance monitoring and post-evaluation results.

1. Consumer goods or services- goods bought and used by consumers, rather than by
manufacturers for producing other goods.
2. Producers goods- goods (as tools and raw materials) used to produce other
goods and satisfy human wants only indirectly.
3. Necessity- the fact of being required or indispensable. Something that you must have or
4. Luxuries- Something that is not essential but provides pleasure and comfort. Something
that is desirable but expensive or hard to obtain or do.
5. Demand- an economic principle that describes a consumer's desire and willingness to
pay a price for a specific good or service.
6. Supply- is the amount of something that firms, consumers, laborers, providers of
financial assets, or other economic agents are willing to provide to the marketplace.
7. Elastic demand- a measure of how much the quantity demanded will change if another
factor changes.
8. Inelastic demand- A situation in which the demand for a product does not increase or
decrease correspondingly with a fall or rise in its price.
9. Unitary elasticity- A situation where a change in one factor causes an equal or proportional
change in another factor.
10. Monopoly- Market situation where one producer (or a group of producers acting in concert)
controls supply of a good or service, and where the entry of new producers is prevented or
highly restricted.

11. Perfect competition- the situation prevailing in a market in which buyers and sellers are so
numerous and well informed that all elements of monopoly are absent and the market price
of a commodity is beyond the control of individual buyers and sellers.
12. Oligopoly- a state of limited competition, in which a market is shared by a small number of
producers or sellers.
13. Law of supply and demand- the theory explaining the interaction between the supply of a
resource and the demand for that resource. The law of supply and demand defines the
effect that the availability of a particular product and the desire (or demand) for that product
has on price. Generally, if there is a low supply and a high demand, the price will be high. In
contrast, the greater the supply and the lower the demand, the lower the price will be.
14. Law of diminishing returns- used to refer to a point at which the level of profits or benefits
gained is less than the amount of money or energy invested.
15. Valuation- Appraising or estimating the worth of something having economic or monetary

1. Intangible values- the present value of excess earning power of an entity over the
normal rate of return.
Patent is a government license that gives the holder exclusive rights to a
process, design or new invention for a designated period of time. Applications
for patents are usually handled by a government agency.
Trademark is a word, phrase, symbol, and/or design that identifies and
distinguishes the source of the goods of one party from those of others.
Goodwill is an assumed value of the attractive force that generates sales
revenue in a business, and adds value to its assets. Goodwill is an intangible but
saleable asset, almost indestructible except by indiscretion.
franchise is a type of license that a party (franchisee) acquires to allow them to
have access to a business's (the franchiser) proprietary knowledge, processes
and trademarks in order to allow the party to sell a product or provide a service
under the business's name

2. Costs- The sacrifice involved in performing an activity, or following a decision or course of

action. It may be expressed as the total of opportunity cost (cost of employing resources in
one activity than the other) and accounting costs (the cash outlays).
Fixed cost is a cost that does not change with an increase or decrease in the
amount of goods or services produced.

Average cost and/or unit cost is equal to total cost divided by the number of
goods produced (the output quantity, Q).
Variable cost is a corporate expense that varies with production output.
Marginal cost the cost added by producing one extra item of a product.
Sunk cost is a cost that has already been incurred and cannot be recovered.
Incremental cost is the increase in total costs resulting from an increase in
production or other activity.
3. Expenditures- Payment of cash or cash-equivalent for goods or services, or a charge
against available funds in settlement of an obligation as evidenced by an invoice, receipt,
voucher, or other such document.
Personal Consumption are measures of price changes in consumer goods and
services. Personal consumption expenditures consist of the actual and imputed
expenditures of households; the measure includes data pertaining to durables,
non-durables and services.
Gross Private Domestic is the measure of physical investment used in computing
GDP in the measurement of nations' economic activity. This is an important
component of GDP because it provides an indicator of the future productive
capacity of the economy.
Gross consumption and Gross Investment is an expenditures by federal, state,
and local governments for final goods and services
Net exports are the difference between exports and imports.
Capital expenditures is the money spent by a business or organization on
acquiring or maintaining fixed assets, such as land, buildings, and equipment.
Revenue expenditures is an amount that is expensed immediatelythereby
being matched with revenues of the current accounting period. Routine repairs
are revenue expenditures because they are charged directly to an account such
as Repairs and Maintenance Expense.
Recurring or repetitive expenditures refers to payments made by governments or
organizations for all purposes except capital costs. Recurrent expenditure
includes payments made on goods and services as well as interest and
Non-recurring or unusual charge, expense, or loss that is unlikely to occur again
in the normal course of a business. Non recurring costs include write offs such as
design, development, and investment costs, and fire or theft losses, lawsuit
payments, losses on sale of assets, and moving expenses.

4. Overlapping cost Overhead costs are all costs on the income statement except for direct labour,
direct materials, and direct expenses.
Direct cost is a price that can be completely attributed to the production of
specific goods or services.

Indirect costs are costs that are not directly accountable to a cost object (such as
a particular project, facility, function or product). Indirect costs may be either fixed
or variable.
Standard cost is the practice of substituting an expected cost for an actual cost in
the accounting records, and then periodically recording variances showing the
difference between the expected and actual costs.

5. Payment- is the transfer of an item of value from one party (such as a person or
company) to another in exchange for the provision of goods, services or both, or to fulfill
a legal obligation.
Cash Payment is the buyer pays money in the form of notes and coins to the
Telegraphic transfer or mail transfer is the payer deposits the money in a bank
which has a branch office at the payers place.
Postal order is a financial instrument usually intended for sending money through
Promissory note a signed document containing a written promise to pay a stated
sum to a specified person at a specified date.
Bill of exchange is an unconditional order in writing, addressed by one person to
another, signed requiring to whom it is addressed to pay, on demand or at a fixed
or determinable future time, a sum certain in money or to order of the bearer.
Bank draft is a check drawn by a bank on its own funds in another bank.
Cheque is a document that orders a bank to pay a specific amount of money
from a persons account to the person in whose time cheque has been issued.
Third party or Mutual is an individual or entity that is involved in a transaction but
is not one of the principals. The third party often has a lesser interest in the
transaction than the principals.
Full payment is lease arrangement in which a seller or owner (the lessor) of the
leased asset or property recovers the full cost (original cost plus profit margin,
interest, and other charges) of the item, with little or no dependence on the
residual value of the item for any return.
Push payment is made as a credit transfer from the consumers financial
institution to the merchant.
Pull payment is made directly from the customers account rather than through a
third party account.