Engineering Economy – Set 2
1. A 30 hp sand mill cost P360,000,
brokerage cost is P5,000, foundation
and installation costs P25,000 and
other incidental expenses amounted to
P20,000. Salvage value of the mill is
estimated to be P60,000 after 20
years. Find the appraisal or book value
of the mill using straight line
depreciation method after 10 years.
a) P163,750 b) P235,000
c) P269,000 d) P145,333
2. A dump truck was bought for P30,000
six years ago. It will have a salvage
value of P3,000 four years from now. It
is sold now for P8,000. What is its sunk
cost ( a cost that can be recovered due
to certain reason) if the depreciation
method used is sinking fund at 6%?
a) P5,800 b) P7,712
c) P8,732 d) P4,908
3. A cement mixer costs P45,000 with an
estimated life of 5 years. Its salvage
value is P2,500. Find its yearly
depreciation charge using sinking fund
method at 8.5%.
a) P8,500 b) P7,172.54
b) P8,000 c) P7,692.74
4. An asset is purchased for P9,000. Its
estimated life is 10 years, after which it
will be sold for P1,000. Find the book
value at the end of third year if sum-of-
the-year’s digit method ( SYDM)
depreciation is used.
Review Innovations
a) P6,100 b) P5,072 and salary payments. If the cost to
c) P4,500 d) P4,800 produce one bookcase is P50, how
many cases must be sold each year for
5. A property is purchased at P 100,000 XYZ to avoid loss?
with a salvage value of 10% of the a) 2334 cases b) 539 cases
original cost after 8 years of service. If c) 750 cases d) 2233 cases
during the first 4 years of service it 9. It is estimated that insulation of steam
produces 100 units per year and 80 pipes in a factory will reduce the fuel
units each year for the remaining bill by as much as 20%. The cost of the
years. What will be the book value insulation is P90,000 installed and the
after 5 years of service using service annual cost of taxes and insurance is
output method? 5% of the initial cost. Without
a) P30,000 b) P50,000 insulation, the annual fuel bill is
c) P40,000 d) P60,000 P180,000. If the insulation is worthless
after 6 years use, what would be the
6. A certain type of equipment losses rate of return? i=12%
10% of its value each year. The a) 22.7% b) 12.6%
machine cost P2,000 originally. What is c) 14.8% d) 20.0%
the total depreciation after four years?
a) P200 b) P819
c) P542 d) P688 10. RI is planning to put up its own
building.
7. Steel drum manufacturers incur a
yearly fixed operating cost of The two proposals being considered
P200,000. Each drum manufactured are:
costs P160 to produce and sells P200.
What is the manufacturer’s break-even Proposal A: Construction of the building
sales volume in drums per year? now, to cost P4,000,000.
a) 1250 units b) 2500 units
c) 5000 units d) 1000 units Proposal B: Construction of a smaller
building now, to cost P3,000,000 and
8. XYZ Corporation manufactures at the end of 5 years an extension to
bookcases that it sells for 65 each. It be added to cost P2,000,000.
cost XYZ P35,000 per year to operate
its plant. This sum includes rent,
depreciation charges on equipment,
Engineering Economy – Set 2 Review Innovations
Which is more economical if the a) Proposal A is more economical by c) Proposal A and B are economically
interest rate is 20% and depreciation around P196,245. equal.
to be neglected? By how much? b) Proposal B is more economical by d) all of these are correct.
around P196,245.