Engineering Economic Analysis

16 MAKING ECONOMIC DECISIONS

A concrete aggregate mix is required to contain at least 31% sand by volume for proper batching.

One source of material, which has 25% ~_a.ndan.~_75% coarse aggregate, sells for $3 per cubic

meter (m3). Another source, which has 40% sand and 60% coarse aggregate, sells for$4AO/m3.

Determine the least cost per cubic meter of blended aggregates.

The least cost of blended aggregates will result from maximum us~ of the lower-cost material.

The higher-cost material will be used to increase the proportion of sand up to the minimumlevel

(31%) specified. ..

Letx =Portion of blended aggregates from $3.DO/Ill3.source

1 - x =Portion of blended aggregates froIll$4AO/m3source

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Sand Balance

x(0.25)+ (1= x) (0040)=0.31

0.25x+ 0040 - OAOx- 0.31

0.31- 0040 -0.09

x- · .--.

- 0.25- 0040 - -0.15

=Q.60

Thus the blended aggregates will contain

60% of $3.00/Ill3Illaterial

40% of $4.40/m3 material

The least cost per cubic meter of blended.aggregates .is

;;

0.60($3.00) -I-0040($4.40)-1.~O-l-l.76

.'....$3.S6/m3

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A machine part is manufactured at a unit cost of40,ifor material and 15,i for direct labor..An

investment of $500,000 in tooling is required. The order calls for 3 million pieces. Halfway

throughthe order, a new1.11ethodof manufacturecan.be put into.effectthatwi11~reducefue UIiit 1

costs to~4,i for materi('ilandlO,i forcdifect labor-=-but"'it::wiJl"require,:$~OQ;00Q'for~ddiijopa.I=-->1,

tooling. This tooling will not be usefUlfor future orders.Oth~r costs are allocated at 2.5 tiIDesthe ·

direcflabor cost. What, if'<'lPything,should be done?

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