IEMECON

Selections in the Present Economy

1. A building contractor can source door frames from either a nearby shop or a far-off forest area.
The cost details are summarized in the table below. The total requirement of wood for the
construction work is 75 tons. Find the best alternative for buying the wooden frames. Also find
the economic advantage of the best alternative.

Items Nearby Shop Far-off Forest Area

2. A company is considering the possibility of buying part No.010 from an outside supplier instead
of manufacturing the part as it is now. The annual requirement for part No. 010 is 50,000 units.
The cost to manufacture this part is:

Direct Material Php 4

3. In the design of a jet engine part, the designer has a choice of specifying either an aluminum
alloy casting or steel casting. Either material will provide equal service, but the aluminum casting
will weigh 1.2 kg compared with 1.35 kg for the steel casting.
The aluminum can be cast for $ 80.00 per kg and the steel one for $ 35.00 per kg. The cost
of machining per unit is $ 150.00 for aluminum and $ 170.00 for steel. Every kilogram of excess
weight is associated with a penalty of $ 1,300 due to increased fuel consumption. Which material
should be specified and what is the economic advantage of the selection per unit?

4. The Pampanga Corporation manufactures a single product called “Mangyanan” Under normal
operating conditions; the company manufactures and sells 90,000 units of this product in a 6
month period. The contribution to fixed costs and profits of each unit of product is P 8. The fixed
overhead costs for six months amount to P 320,000.

Other companies buying this product are currently encountering labor difficulties and this resulted
to a reduction in sales to only 4,000 units per month. A sales volume of only 4,000 units monthly
 will definitely result to a loss. Therefore, the management of the firm plans to close the plant for
six months, anticipating that market will be back to normal after six months.
Studies indicated that the 6-month fixed overhead costs of P 320,000 can be cut down to
P225,000 if the plant is closed. However, additional costs to protect the facilities and start up
costs have been estimated at P 31,000.

Should the company close the plant for six months or continue its operation?

5. A cement kiln with production capacity of 130 tons per day (24 hours) of clinker has at its
burning zone about 45 tons of magnesite chrome bricks being replaced periodically, depending
on some operational factors and the life of the bricks.

If locally produced bricks cost P 25,000 per ton and have a life of 4 months, while certain
imported bricks costing P 30,000 per ton and have a life of 6 months, determine the more
economical bricks and by how much. (ME Board Problem- Oct.1987)

6. An equipment installation job in the completion stage can be completed in 40 days of 8 hour day
work, with 40 men working. With the contract expiring in 30 days, the mechanical engineer
contractor decided to add 10 men on the job, overtime not being permitted.

If the liquidated damage is P 2,000 per day of delay, and the men are paid P 80 per day, will the
engineer be able to complete the jobe on time? Would he save money with the addition of
workers?(ME Board Problem- April 1988)

7. The chief engineer of refinery operations is not satisfied with the preliminary design for storage
tanks to be used as part of a plant expansion programme. The engineer who submitted the design
was called in and asked to reconsidfer the overall dimensions in the light of an article in the
Chemical Engineer, entitled “How to size future process vessels?”

The original design submitted called for 4 tanks 5.2 m in diameter and 7m in height. From a graph
of the article, the engineer found that the present ratio of height to diameter of 1.35 is 111% of the
minimum cost and that the minimum cost for a tank was when the ratio of height to diameter was
4:1. The cost for the tank design as originally submitted was estimated to be $ 9,000,000. What
are the optimum task dimensions if the volume remains the same as for the original design? What
total savings may be expected through the redesign?

8. Suarez Corporation manufactures a certain product XYZ. This product can be sold at the end of a
particular stage of production or can be further processed and sold as a completely processed
product.

A partially processed product sells for P 45 per unit and the manufacturing costs amount to P 30
per unit. If the product is further processed, variable cost of P 15 will be spent and the product can
be sold at P 55 per unit. The estimate annual sales for this product is 30,000 units.

9. Two alternatives are under consideration for a tapered fastening pin. Either design will serve the
purpose and will involve the same material and manufacturing cost except for the lathe and
grinder operations.
 Design A will require 16 hours of lathe time and 4.5 hours of grinder time per 1,000 units. Design
B will require 7 hours of lathe time and 12 hours of grinder time per 1,000 units. The operating
cost of the lathe including labour is $200 per hour. The operating cost of the grinder including
labour is 150 per hour. Which design should be adopted if 1,000 units are required per year and
what is the economic advantage of the best alternative?

10. A company manufactures dining tables which mainly consist of a wooden frame and a table top.
The different materials used to manufactire the tables and their costs are given in Table 2.1

Table 2.1
Description of Item Quantity Cost ($)
Wood for frame and legs 0.1 m3 12,000/m3
Table top with sunmica finish 1 3,000
Leg bushes 4 10/bush
Nails 100 g 300/kg
Total labour 15 hr 50/hr

In view of the growing awareness towards deforestation and environmental conservation, the
company feels that the use of wood should be minimal. The wooden top therefore could be
replaced with a granite top. This would require additional wood for the frame and legs to take the
extra weight of the granite top. The materials and labour requirements along with cost details to
manufacture a table with granite top are given in Table 2.2

Table 2.2
Description of Item Quantity Cost ($)
Wood for frame and 0.15 m3 12,000/m3
legs
Granite Table top 1.62 m2 800/m2
Leg bushes 4 25/bush
Nails 50 g 300/kg
Total labour 8 hr 50/hr

If the cost of the dining table with a granite top works out to be lesser than that of the table with
wooden top, the company is willing to manufacture dining tales with granite tops. Compute the
cost of manufacture of the table under each of the alternatives described above and suggest the
best alernative. Also, find the economic advantage of the best alternative.

11. In the design of buidlings to be constructed in Alpha State, the designer is considering the type of
window frame to satisfy. Either steel or aluminum windrow frames will satisfy the design
criteria. Because of the remote location of the building site and lack of building materials in
Alpha state, the window frames will be purchased in Beta State and transported for a distance of
2,500 km to the site. The price of window frames of the type required is $ 1,000 each for steel
frames and $ 1,500 each for aluminum frames. The weight of steel window frames is 75 kg each
and that of aluminim window frame is 28 kg each. The shipping rate is $ 1 per kg per 100 km.
Which design should be specified and what is the economic advantage of the selection?
12. The process planning engineer of a firm listed the sequences of operations as shown in the table
2.3 to produce a component.
Table 2.3
Sequence Process Sequence
1 Turning-Milling-Shaping-Drilling
2 Turning-Milling-Drilling
3 All operations are performed with CNC machines

The details of processing times of the component for various operations and their machine hour
rates are summarized in Table 2.4.

Table 2.4
Machine Hour Rates and Processing Times (minutes)
Machine
Operation Process Sequence
Hour Rate
1 2 3
Turning 200 5 5 -
Milling 400 8 14 -
Shaping 350 10 - -
Drilling 300 3 3 -
CNC 1,000 - - 8

Find the most economical sequence of operations to manufacture the component.

13. A paint manufacturing company uses a sand mill for fine grinding of paint with an output of 100
liters per hour using glass beads as grinding media. Media load in the mill is 25 kg, costing P 200
per kg, and is fully replenished in 2 months time, at 8 hours per day operation, 25 days per
month.

A ceramics grinding media is offered to this paint company costing P400 per kg, and needs 30 kg
in the sand mill, but guarantees an output of 120 liters per hour and full replenishment of media in
3 months.

If profits on paint production is P 15 liter, would you recommend the change in media? Show by
calculations comparative cost to justify your answer. (ME Board Problem- Oct.1987).