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-ofthe-years digit method ( SYDM)
depreciation is used.

a) P6,100
c) P4,500

b) P5,072
d) P4,800

5. A property is purchased at P 100,000

with a salvage value of 10% of the
original cost after 8 years of service. If
during the first 4 years of service it
produces 100 units per year and 80
units each year for the remaining
years. What will be the book value
after 5 years of service using service
output method?
a) P30,000
b) P50,000
c) P40,000
d) P60,000
6. A certain type of equipment losses
10% of its value each year. The
machine cost P2,000 originally. What is
the total depreciation after four years?
a) P200
b) P819
c) P542
d) P688
7. Steel drum manufacturers incur a
yearly
fixed
operating
cost
of
P200,000. Each drum manufactured
costs P160 to produce and sells P200.
What is the manufacturers break-even
sales volume in drums per year?
a) 1250 units
b) 2500 units
c) 5000 units
d) 1000 units
8.

XYZ
Corporation
manufactures
bookcases that it sells for 65 each. It
cost XYZ P35,000 per year to operate
its plant. This sum includes rent,
depreciation charges on equipment,

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and salary payments. If the cost to
produce one bookcase is P50, how
many cases must be sold each year for
XYZ to avoid loss?
a) 2334 cases
b) 539 cases
c) 750 cases
d) 2233 cases
9. It is estimated that insulation of steam
pipes in a factory will reduce the fuel
bill by as much as 20%. The cost of the
insulation is P90,000 installed and the
annual cost of taxes and insurance is
5% of the initial cost. Without
insulation, the annual fuel bill is
P180,000. If the insulation is worthless
after 6 years use, what would be the
rate of return? i=12%
a) 22.7%
b) 12.6%
c) 14.8%
d) 20.0%

10. RI is planning to put up its own

building.
The two proposals being considered
are:
Proposal A: Construction of the building
now, to cost P4,000,000.
Proposal B: Construction of a smaller
building now, to cost P3,000,000 and
at the end of 5 years an extension to
be added to cost P2,000,000.

Engineering Economy Set 2

Which is more economical if the
interest rate is 20% and depreciation
to be neglected? By how much?

a) Proposal
around
b) Proposal
around

A is more economical by
P196,245.
B is more economical by
P196,245.

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c) Proposal A and B are economically
equal.
d) all of these are correct.