ENGINEERING ECONOMY

Prepared by:
Omillo, Mark Robien C.
Ontalan, Veronica Mae C.
Gecolea, John Nicolo A.
While studying for the engineering economy final
exam, you and two friends find yourselves craving
a fresh pizza. You cannot spare the time to pick
up the pizza and must have it delivered. Pick-Up-
Sticks offers 1-1/4-inch-thick (including
toppings), 20-inch square pizza with your choice
of two toppings for Php 650 plus 15% sales tax
and a Php 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 Php 750 plus 5% sales tax and free delivery.
What is the problem in this situation? Please
state it in an explicit and precise manner.
In this situation, we have to find out
which pizza will satisfy the
hunger/cravings of three college
students at a reasonable price.
Systematically apply the
seven principles of
engineering economy to the
problem you have defined
 x Order pizza from Pick-Up-
Develop Sticks
x Order pizza from Freds
alternatives x Dont order at all
 Pick-Up-Sticks Freds

Focus on the
DELIVERY CHARGE

Php 50.00 Free

differences VOLUME

(20)*(20)*(1.25) = 500
in.3
(3.14)*(102)*(1.75)=
549.5 in.3
 USE A The pizza has to satisfy
the hunger of three
CONSISTENT students at a more
reasonable price.
VIEWPOINT
USE A Common
unit of measure
In this situation, the common unit of
measure is Philippine Peso or Php
 x Number of toppings offered for
Develop each box of pizza.
x Cost of the pizza considering
the volume per box.
alternatives x The taste of the Pizza.
MAKE x Delivery Time

x Which pizza
UNCERTAINTY place sells
Place your screenshot here

tastier and
cheaper pizza
EXPLICIT
REVISIT YOUR DECISIONS
After consuming the pizza, the students
must judge the taste so they can
determine if the pizza is really worth
their money or they should order from
another place next time.
Assuming that your common unit
of measure is pesos (i.e. cost),
what is the better value for
getting a pizza based on the
criterion of minimizing cost per
unit volume?
 Pick-Up-Sticks Freds

Volume (20)*(20)*(1.25) = 500 in.3 (3.14)*(102)*(1.75)= 549.5 in.3

Total Cost Php 650*(1.15) + Php 50 = Php Php 750*(1.05) = 787.5

797.5

Cost Per in.3 Php 1.60 Php 0.70

Analysing the computations, the table shows that Freds

sells more pizza at a much cheaper cost per unit volume.
What other criteria x Delivery Time

x Number of free
might be used to pizza toppings
per box.

select which pizza x One pizza looks

more pleasing
to purchase? that the other.
Situation 2
During your first month as an employee at Greenfield Industries (a large drill-
bit manufacturer), you are asked to evaluate alternatives for producing a
newly designed drill bit on a turning machine. Your boss memorandum to
you has practically no information about what the alternatives are and what
criteria should be used. The same task was posed to a previous employee
who could not finish the analysis, but she has given you the following
information:
An old turning machine valued at Php 350,000 exists (in the warehouse) that can be modified for the
new drill bit. The in-house technicians have given an estimate of Php 40,000 to modify this machine, and
they assure you that they will have the machine ready before the projected start date (although they
never done any modifications of this type). It is hoped that the old turning machine will be able to meet
the production requirements at full capacity. An outside company, McDonald Inc., made the machine
seven years ago and can easily do the same modifications for Php 60,000. The cooling system used for
this machine is not environmentally safe and would require some disposal costs. McDonald Inc. has
offered to build a new turning machine with more environmental safeguards and higher capacity for a
price of Php 450,000. McDonald Inc. has promised this machine before the start-up date and is willing to
pay any late costs. Your company has Php 100,000 set aside for the start-up of the new product line of
drill bits.
DEFINE THE PROBLEM

Greenfield Industries needs a turning

machine to design a new drill bit.
 x The existing turning machine can

List key be modified by the in-house

technicians for Php 40,000.

assumptions x The existing turning machine can

be modified by McDonald Inc. for
Php 60,000.
 Repairing Old Turning Machine
REPAIR BY PROS CONS
In-House Cheaper They have never Continue
Tecnicians Promises to have repaired one like using old
(Cost: Php40, 000) the machine ready it before. cooling
before project start system
date. that is not
Mcdonald Inc. Can easily do the More expensive. environme
(Cost: Php 60,000) same ntally safe.
modifications
because they
made the machine.
 They can sell the existing drill bit for Php 350,000

List and add the Php 100,000 they set aside to buy a
new Turning Machine.

ALTERNATIVES
Building a new turning machine
PROS CONS
New and upgraded machine Will cost an extra Php
means meeting the production 100,000 (Assuming that

FACING

requirements at full capacity.
New environmentally safe
cooling system.
Machine is ready before start-
Greenfield Industries will
be able to sell old
machine for Php
350,000).

GREENFIELD up date and Mcdonald Inc. is

willing to pay for late costs.

INDUSTRIES
 SELECT A The turning machine has
CRITERION to be safe and has to be
purchased at a better
FOR deal.

EVALUATION
 x If Greenfield Industries decides to
repair the old turning machine,
the cooling system used for this
machine will remain to be a

Risks in the
threat to the environment.
x If Greenfield Industries decides to
repair the old turning machine,
there will screenshot
Place your be a higher
here chance that

situation
it will break down again.
x If Greenfield Industries decides to
have the house technicians repair
the turning machine, there is a
possibility that they will not
repair it properly since they have
never repaired one like it before.
Discuss how non-
monetary
considerations may
impact the selection.
Having Mcdonald Inc. repair the turning machine
is a better idea since they made the machine and
they will surely be able to repair the machine so
that it will meet production requirements and is
even willing to pay late costs.

Buying a new turning machine is also a good idea

since a new and updated machine means it has a
new environmentally safe cooling system.