MARIANO MARCOS STATE UNIVERSITY

COLLEGE OF ENGINEERING
DEPARTMENT OF AGRICULTURAL AND BIOSYSTEMS ENGINEERING

ENGINEERING ECONOMY
IE 112

Engr. Shaira Camille M. Santos

BREAK-EVEN ANALYSIS
Break-even Analysis IE-112 Engineering Economy
Instructor: Shaira Camille M. Santos

.
Example Problem IE-112 Engineering Economy
Instructor: Shaira Camille M. Santos

A local factory assembling calculators produces 400 units per month and sells
them at Php 1, 800 each. Dividends are 8% on the 8, 000 shares with par value
.of Php 250 each. The fixed operating cost per month is Php 25, 000. Other
costs are Php 1, 000 per unit. Determine the break-even point. If only 200 units
were produced per month, determine the profit or loss.
Example Problem IE-112 Engineering Economy
Instructor: Shaira Camille M. Santos

A local factory assembling calculators produces 400 units per month and sells
them at Php 1, 800 each. Dividends are 8% on the 8, 000 shares with par value
.of Php 250 each. The fixed operating cost per month is Php 25, 000. Other
costs are Php 1, 000 per unit. Determine the break-even point. If only 200 units
were produced per month, determine the profit or loss.
Example Problem IE-112 Engineering Economy
Instructor: Shaira Camille M. Santos

A telephone switchboard 100 pair cable can be made with either enameled
wire or tinned wire. There will be 400 soldered connections. The cost of
.soldering a connection on the enameled wire will be Php 1.65, on the tinned
wire, it will be Php 1.15. A 100-pair cable made up with enameled wire cost Php
0.55 per lineal foot and those made up with tinned wire cost Php 0.76 per
lineal foot. Determine the length of cable run in ft so that the cost of each
installation would be the same.
Example Problem IE-112 Engineering Economy
Instructor: Shaira Camille M. Santos

A telephone switchboard 100 pair cable

can be made with either enameled wire
.o r t i n n e d w i r e . T h e r e w i l l b e 4 0 0
soldered connections. The cost of
soldering a connection on the enameled
wire will be Php 1.65, on the tinned wire,
it will be Php 1.15. A 100-pair cable made
up with enameled wire cost Php 0.55
per lineal foot and those made up with
tinned wire cost Php 0.76 per lineal foot.
Determine the length of cable run in ft
so that the cost of each installation
would be the same.
Benefit-Cost Ratio IE-112 Engineering Economy
Instructor: Shaira Camille M. Santos

The method of selecting alternatives that is commonly used by

government agencies for analyzing the desirability of public projects is the
.
benefit-cost ratio (B/C ratio). The B/C method of analysis is based on the ratio
of the benefits to costs associated with a particular project. The benefit/cost
(B/C) ratio introduces objectivity into the economic analysis of public sector
evaluation, thus reducing the effects of politics and special interests.
The different formats of B/C analysis, and associated disbenefits of an
alternative, are discussed here. The B/C analysis can use equivalency
computations based on PW, AW, or FW values. Performed correctly, the
benefit/cost method will always select the same alternative as PW, AW, and
ROR analyses.
Benefit-Cost Ratio IE-112 Engineering Economy
Instructor: Shaira Camille M. Santos

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Costs- estimated expenditures to the government entity for construction,

operation, and maintenance of the project, less any expected salvage value.
Benefits- advantages to be experienced by the owners, the public.
Disbenefit- expected undesirable or negative consequences to the owners
if the alternative is implemented. Disbenefits may be indirect economic
disadvantages of the alternative.
Example Problem IE-112 Engineering Economy
Instructor: Shaira Camille M. Santos

A nonprofit educational research organization is contemplating an investment

of Php 1, 500, 000 in grants to develop new ways to teach people the
.rudiments of profession. The grants would extend over a ten-year period and
would achieve an estimated savings of Php 500, 000 per year in professor’s
salaries, student tuition, and other expenses. The program would be an
addition to ongoing and planned activities, thus an estimated Php 100, 000 a
year would have to be released from other program to support the
educational research, a rate of return of 15% is expected. Is this a good
program?
Example Problem IE-112 Engineering Economy
Instructor: Shaira Camille M. Santos

A nonprofit educational research

organization is contemplating an
.investment of Php 1, 500, 000 in grants to
develop new ways to teach people the
rudiments of profession. The grants would
extend over a ten-year period and would
achieve an estimated savings of Php 500,
000 per year in professor’s salaries, student
tuition, and other expenses. The program
would be an addition to ongoing and
planned activities, thus an estimated Php
100, 000 a year would have to be released
from other program to support the
educational research, a rate of return of 15%
is expected. Is this a good program?
Example Problem IE-112 Engineering Economy
Instructor: Shaira Camille M. Santos

An investment of Php 100, 000 is expected to yield a regular annual net income
of Php 25, 000 for 10 years. Determine the benefit-cost ratio if money is worth
.10% per annum.
Example Problem IE-112 Engineering Economy
Instructor: Shaira Camille M. Santos

The DPWH is considering the construction of a new highway

.through a scenic rural area. The road is expected to Cost Php 50,
000, 000 with annual upkeep estimated at Php, 400, 000. The
improved accessibility is expected to result in additional income
from tourists of Php 7, 000, 000 per year. The road is expected to
have a useful life of 25 years. If the rate of interest is 15%, should the
road be constructed?
Example Problem IE-112 Engineering Economy
Instructor: Shaira Camille M. Santos

The DPWH is considering the

.
construction of a new highway through
a scenic rural area. The road is expected
to Cost Php 50, 000, 000 with annual
upkeep estimated at Php, 400, 000. The
improved accessibility is expected to
result in additional income from tourists
of Php 7, 000, 000 per year. The road is
expected to have a useful life of 25 years.
If the rate of interest is 15%, should the
road be constructed?
Example Problem IE-112 Engineering Economy
Instructor: Shaira Camille M. Santos

The DPWH is considering the

.
construction of a new highway
through a scenic rural area. The road is
expected to Cost Php 50, 000, 000
with annual upkeep estimated at Php,
400, 000. The improved accessibility is
expected to result in additional
income from tourists of Php 7, 000,
000 per year. The road is expected to
have a useful life of 25 years. If the
rate of interest is 15%, should the road
be constructed?
Example Problem IE-112 Engineering Economy
Instructor: Shaira Camille M. Santos

Four alternatives for providing power supply to a small town have

.been identified with the following annual benefits and costs:
Alternative Annual Benefits, Php Annual Costs, Php
A 1,528,000 780,000
B 1,398,000 664,000
C 960,000 742,000
D 810,000 420,000
Example Problem IE-112 Engineering Economy
Instructor: Shaira Camille M. Santos

Four alternatives for

providing power supply to a
.s m a l l t o w n h a v e b e e n
identified with the following
annual benefits and costs:
Alternative Annual Annual
Benefits, Costs, Php
Php
A 1,528,000 780,000

B 1,398,000 664,000

C 960,000 742,000

D 810,000 420,000