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FUNDAMENTALS OF
ENGINEERING ECONOMY
CHE40: Engineering Economy
Definition of Engineering Economy
Outline
Define engineering economy.
State the principles of engineering
economy.
Learning Objectives
Engineering
the profession in which a knowledge of the
mathematical and natural sciences gained
by study, experience and practice is applied
with judgment to develop ways to utilize,
economically, the materials and forces of
Engineering Economy
systematic evaluation of the economic
merits of proposed solutions to engineering
problems
4
11
12
AN EXAMPLE PROBLEM TAKEN FROM AN OLD
EXAM
a) One problem involves how to satisfy the hunger of three students--
assume a piping hot, delicious pizza will satisfy this need. (Another
problem is to learn enough about Engineering Economy to pass--
or better yet earn an A or a B--on the final examination and
ace the course. Maybe a pizza will help solve this problem too?)
Lets use hunger satisfaction with a pizza as the problem/need
definition.
Principle 1 - Develop the Alternatives
14
Solution
Principle 5 - Consider All Relevant Criteria
Factors other than cost may affect the decision about which pizza
to order. For example, variety and quality of toppings and
delivery time may be extremely important to your choice.
Dynamics of group decision making may also introduce various
political considerations into the final selection (can you name a
couple?).
Solution
c) Finally some numbers to crunch--dont forget to list any key assumptions
that underpin your analysis to minimize the cost per unit of volume
(Principles 1, 3, 3, 4 and 6 are integral to this comparison).
Analysis:
Alternative A Pick-up Sticks: Alternative B Freds
Volume = 20 x 20 x 1 = 400 in3 Volume = (3.1416)(10)2(1.75) = 550
in3
Total Cost = $ 15 (1.05) + $ 1.50 = $ Total Cost = $ 17.25 (1.05) = $ 18.11
17.25
Cost per in3 = $ 0.043 Cost per in3 = $ 0.033 16
Therefore, order the pizza from Freds to minimize total cost per in3
Solution
Fundamentals of Engineering Economy
17
Problem Development of
recognition, Development of the outcomes and
definition and feasible alternative cash flows for each
evaluation alternative
21
Outline
Sullivan,W., Wicks, E. and Luxhoj, J.,
Engineering Economy, 12th ed, USA:
Pearson Education, Inc., 2003
References
FUNDAMENTALS OF
ENGINEERING ECONOMY
CHE40: Engineering Economy