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Review Module – Engineering Economy

DEPRECIATION

SITUATION. A machine costing P500,000 has a life expectancy of 12

years with a salvage value of 10% of the first cost. Determine the
depreciation charge during the 5th year, the total depreciation after 5
years, and the book value after 5 years,

1. Using the Straight-Line Method of Depreciation (SLM).

2. Using the Depreciation by Sum of Years Digit Method (SOYD)

3. Using the Depreciation by Declining Balance Method (DBM),

Constant Percentage Method (CPM) or Matheson’s Method.

4. Using the Depreciation by Double Declining Balance Method

(DDBM).

5. Using the Depreciation by Sinking Fund Method (SFM). Assume

interest rate= 8%

INFLATION

6. An economy is experiencing inflation at the rate of 5% per year. An

item presently costs P200. If the 5% inflation rate continues, what
will be the price of this item in 3 years.

7. Suppose that your salary is P45,000 in year one, and will increase
at 4% per year through year four. What will be your final salary after
4 years, in terms of today’s pesos? Assume that the inflation is at
5% per year.

BREAK-EVEN ANALYSIS

8. The cost of producing a certain commodity consists of P45.00 per

unit for labor and material cost and P15.00 per unit for other variable
cost. The fixed cost per month amounts to P450,000. If the
commodity is sold at P250.00 each, what is the break-even
quantity?