INTRODUCTION TO

ENGINEERING ECONOMIC
 ECONOMICS
Economics is one of the social
sciences which consists of that
body of knowledge dealing
with people and their assets
or resources.
ENGINEERING ECONOMICS
Engineering Economics is defined as
that branch of Economics that
involves the application of definite
laws of Economics, theories of
investment and business practices to
engineering problems involving costs.
PRESENT ECONOMY
Present Economy involves the
analysis of problems for
manufacturing a product or
rendering a service based on
present or immediate costs.
Present Economy Studies
1. SELECTION OF MATERIAL
2. SELECTION OF METHOD
3. SELECTION OF DESIGN
4. SITE SELECTION
5. COMPARISON OF PROFICIENCY OF WORKERS
6. ECONOMY OF TOOL AND EQUIPMENT
MAINTENANCE
7. ECONOMY IN THE UTILIZATION OF
PERSONNEL
Examples on Selection of Materials
Problem: A machine part to be machined may be
either from an alloy of aluminum or steel. There
is an order for 8,000 units. Steel costs Php 3.80
per kg., while aluminum costs Php 8.70 per
kilogram. If steel is used, it weighs 110 grams per
unit; for aluminum is 30 grams per unit. When
steel is used, 50 units can be produced per hour;
for aluminum, 80 units per hour with the aid of a
tool
costing Php 640.00, which will be useless
after the 8,000 units are finished. The
cost of the machine and operator is Php
10.80 per hour. If all other costs are
identical, determine which material will
be more economical.(Hint: Determine
first the cost per piece.)
Examples on Selection of Materials
Problem: A Diesel engine uses Type A filter and high-grade
lubricating oil costing Php 5.50 per liter. With this filter, the
oil and the filter have to be changed every 500 hours of
operation, and 5 liters have to be added every 100 hours.
This filter costs Php 148 a piece. Eighty liters of oil fill the
engine. Another type, filter B, costing Php 120 maybe used
with a lower grade of oil costing Php 4.80 per liter. However,
if this filter is used, the oil and the filter have to be changed
every 300 hours, and 10 liters are added each 150 hours the
engine is used. Which type of filter and oil would you
recommend?
Examples on Selection of Method
Problem: The ore of a gold mine contains 0.5
gram of gold per ton. One method of
processing costs Php 1650 per ton and
recovers 93% of the gold, another method
costs only Php 1500 per ton and recovers 81%
of the gold. If the gold can be sold at Php 8500
per gram, which method is better and by how
much?
Examples on Selection of Method
Problem: The ore of a gold mine contains 0.5
gram of gold per ton. One method of
processing costs Php 1650 per ton and
recovers 93% of the gold, another method
costs only Php 1500 per ton and recovers 81%
of the gold. If the gold can be sold at Php 8500
per gram, which method is better and by how
much?
Examples on Selection of Method
Problem: The making of rivet holes in structural steel
members can be done by two methods. The first method
consists of laying out the position of the holes in the
members and using a drill press costing Php 30,000. The
machinist is paid Php 35 per hour and he can drill 30
holes per hour. The second method makes use of a
multiple-punch machine costing Php 27,500. The punch
operator is paid Php 30.00 an hour and he can punch out
4 holes every minute. This method also requires an
expense of Php 1.75 per hole to set the machine.
(a) If all other costs are assumed equal, what
is the total cost for each machine for 6,000
holes, assuming the total cost of each
machine to be charged to these holes?
(b) For how many holes will the costs be
equal?
Examples on Proficiency of Workers
Problem: A structural contractor has a job which
should be completed in 100 days. At present, he
has 80 men on the job and it is estimated that
they will finish the work in 130 days. Of the 80
men, 50 are paid Php 400 a day, 25 at Php 450 a
day, and 5 at Php 500 a day. For each day the
project is delayed beyond the original 100 days,
the contractor has to pay Php 10,000 liquidated
damages.
(a) How many men should the contractor add
so he can complete the work on time?
(b) Of the additional men, if five are paid Php
450 a day and the rest at Php 400 a day,
would the contractor save money by
employing more men and not paying fine?
Examples on Proficiency of Workers
Problem: A contractor has 50 men of the same capacity
at work on a job. They can complete the work in 30
days, the working day being 8 hours, but the contract
expires in 20 days. He decides to put 20 additional men.
If all the men get Php 450 per day for a full or part time
of the day he requires over his contract, and if the
liquidated damages are Php 15,000 for every full or part
day he requires over his contract time, and if not, would
he save more money by putting enough men to complete
it on time?