Pangasinan State University - Urdaneta City Campus

Electrical Engineering Department - AY 2021 - 2022

ES311_Engineering Economics
Topics:
Introduction of Engineering Economy
Money-Time Relationship and equivalence
Economic Study Method
Decision Under Certainty
Annuities
Amortization
Capitalized Cost
Depreciation
Bonds
Break Even Analysis
Decision recognizing Risk
Decision Admitting Uncertainty

References:
1. Economics : principles, problems, and policies by McConnell, Campbell R. c2015 Published by McGraw-Hill
education, s.Inc. ISBN 978-981-4738-24-8
2. Arceda, M.A. (1982). Engineering Economy. 1st Edition. Ken Incorporated Quezon City.
3. Arreola, Matias. (1993). Engineering Economy (A systematic Approach to Engineering Economy). 3rd
Edition. Ken Incorporated Quezon City
4. Blank, Leland P.E. and Tarquin, Anthony P.E. (2008). Basics of Engineering Economy. 1st Edition. McGraw-
Hill Companies, Inc. New York
Prepared by:
5. De Cano, P. (1984). Engineering Economy. 6th Edition. New York:Mc Milan Publishing Co., Inc. JEROME B. PATILLA, REE
6. Sta. Maria, Hipolito B. (2000). Engineering Economy. 3rd Edition. National Book Store, Mandaluyong City. Subject Instructor
INTRODUCTION 4. Use a Common Unit of Measure
Engineering economy involves the systematic evaluation of the economic merits of proposed solutions to It is desirable to make as many prospective outcomes as possible commensurable (directly comparable). For
engineering problems. To be economically acceptable (i.e., affordable), solutions to engineering problems must economic consequences, a monetary unit such as dollars is the common measure. You should also try to translate
demonstrate a positive balance of long-term benefits over long-term costs, and they must also other outcomes (which do not initially appear to be economic) into the monetary unit. This translation, of course,
✓ promote the well-being and survival of an organization, will not be feasible with some of the outcomes, but the additional effort toward this goal will enhance
✓ embody creative and innovative technology and ideas, commensurability and make the subsequent analysis of alternatives easier.
✓ permit identification and scrutiny of their estimated outcomes, and 5.Consider All Relevant Criteria
✓ translate profitability to the “bottom line” through a valid and acceptable measure of merit The decision maker will normally select the alternative that will best serve the long-term interests of the
owners of the organization. In engineering economic analysis, the primary criterion relates to the long-term
Engineering economy is the dollars-and-cents side of the decisions that engineers make or recommend as they financial interests of the owners. This is based on the assumption that available capital will be allocated to provide
work to position a firm to be profitable in a highly competitive marketplace. maximum monetary return to the owners. Often, though, there are other organizational objectives you would like
to achieve with your decision, and these should be considered and given weight in the selection of an alternative.
The mission of engineering economy is to balance these trade-offs in the most economical manner. These nonmonetary attributes and multiple objectives become the basis for additional criteria in the decision-
making process.
A few more of the myriad situations in which engineering economy plays a crucial role in the analysis of project 6. Make Risk and Uncertainty Explicit
alternative come to mind The analysis of the alternatives involves projecting or estimating the future consequences associated with
1. Choosing the best design for a high-efficiency gas furnace each of them. The magnitude and the impact of future outcomes of any course of action are uncertain. Even if the
2. Selecting the most suitable robot for a welding operation on an automotive assembly line
alternative involves no change from current operations, the probability is high that today’s estimates of, for
3. Making a recommendation about whether jet airplanes for an overnight delivery service should be purchased or leased
4. Determining the optimal staffing plan for a computer help desk example, future cash receipts and expenses will not be what eventually occurs.

The Principles of Engineering Economy 7. Revisit Your Decisions

A good decision-making process can result in a decision that has an undesirable outcome. Other decisions,
The development, study, and application of any discipline must begin with a basic foundation. We define the even though relatively successful, will have results significantly different from the initial estimates of the
foundation for engineering economy to be a set of principles that provide a comprehensive doctrine for developing consequences. Learning from and adapting based on our experience are essential and are indicators of a good
the methodology. organization.

7 Principles Example
1. Develop the alternatives The management team of a small furniture-manufacturing company is under pressure to increase profitability to
A decision situation involves making a choice among two or more alternatives. Developing get a much-needed loan from the bank to purchase a more modern pattern-cutting machine. One proposed solution
and defining the alternatives for detailed evaluation is important because of the resulting impact on is to sell waste wood chips and shavings to a local charcoal manufacturer instead of using them to fuel space
the quality of the decision. Engineers and managers should place a high priority on this heaters for the company’s office and factory areas.
responsibility. Creativity and innovation are essential to the process. (a) Define the company’s problem. Next, reformulate the problem in a variety of creative ways. (b) Develop at
2. Focus on the Differences least one potential alternative for your reformulated problems in Part (a). (Don’t concern yourself with feasibility
If all prospective outcomes of the feasible alternatives were exactly the same, there would be at this point.)
no basis or need for comparison. We would be indifferent among the alternatives and could make a
decision using a random selection.
3. Use a Consistent Viewpoint
The perspective of the decision maker, which is often that of the owners of the firm, would normally be
used. However, it is important that the viewpoint for the Particular decision be first defined and then used
consistently in the description, analysis, and comparison of the alternatives
Interest and Money-Time Relationship Example 2
Example 1
The term capital refers to wealth in the form of money or property that can be used to produce more wealth. The majority Determine the exact simple interest on P5000
Determine the ordinary and exact simple interest on
of engineering economy studies involve commitment of capital for extended periods of time, so the effect of time must be P700 for 8 months and 15days if the rate of interest for the period from January 10 to October 28,
considered. In this regard, it is recognized that a dollar today is worth more than a dollar one or more years from now because is 15% 1996 at 16% interest.
of the interest (or profit) it can earn. Therefore, money has a time value.

Interest is the amount of money paid for the use of barrowed capital or the income produced by money which has been
loaned.
Two types of Interest
1. Simple Interest
Ordinary Interest
Exact Interest
2. Compound Interest

Simple Interest
When the total interest earned or charged is linearly proportional to the initial amount of the loan (principal), the interest
rate, and the number of interest periods for which the principal is committed, the interest and interest rate are said to be simple.

Ordinary simple interest is computed on the basis of 12 months of 30 days each or 360 days a year
1 interest period = 360days

Exact simple interest is based on the exact number of days in a year, 365 days for an ordinary year and 366 days for a leap
year.
1 interest period = 365 or 366 days

Note: Example 3 Example 4

Ordinary interest is greater than exact interest. What is the annual rate of interest if P265 is A loan of P2, 000 is made for a period of 13
When interest (ordinary or exact) is not specified in the problem , it is assumed as ordinary interest. earned in four months on an investment of P15, months, from January 1 to January 31 the
000? following year, at a simple interest of 20%.
Formula from Simple Interest What is the future amount is due at the end
I = Pni of the loan period?
F = P + I = P + Pni
F = P (1 + ni)

Where:
I – interest
P – principal or present worth
n – number of interest periods
i – rate of interest per interest period
F – Future worth
COMPOUND INTEREST Rate of Interest Example 1
Whenever the interest charge for any interest
period (a year, for example) is based on the a.) Nominal rate of interest Determine the value of P10,000
remaining principal amount plus any The nominal rate of interest specifies the rate of interest in 5years at 5% compounded
accumulated interest charges up to the and a number of interest periods in one year. quarterly.
beginning of that period, the interest is said to
be compound. i=r/m

In calculation of compound interest, the interest b.) Effective rate interest Effective rate interest is the
for an interest period is calculated on the actual or exact rate of interest on the principal during
principal plus total amount of interest one year
accumulated in previous periods. Thus,
compound interest means “interest on top of ie = (1 + i/m)m - 1
interest”

Where:
i = rate of interest per interest period
r = nominal rate interest
m = number of compounding periods per year

CASH FLOW DIAGRAM Example Example 2

Two points of View A loan of P100 at simple interest Find the amount at the end of
1. Lender of 10% will become P150 after two years and seven months if
2. Borrower 5years P1,000 is invested at 8%
compounded quarterly using
Lender simple interest for anytime less
Borrower than a year interest period

Receipt (positive cash flow

or cash inflow)

Lender
Disbursement (negative cash
flow or cash outflow)

Borrower
 Example 3 Example 5
Example 4
A man wishes his son to receive Suppose that you borrow P8,000
P200, 000 ten years from now. now, promising to repay the loan An investor (owner) has an
What amount should he invest if principal plus accumulated option to purchase a tract of land
it will earn interest of 10% interest in four years at i = 10% that will be worth P10,000,000
compounded annually during the per year. How much would you in six years. If the value of the
first 5 years and 12% repay at the end of four years land increases at 8% each year,
compounded quarterly during how much should the investor be
the next 5 years? willing to pay now for this
property?

Example 6 Example 7

At a certain interest rate By the condition of a will, the

compounded semi-annually sum of P25, 000 is left to be held
P5,000 will amount to P20,000 in trust by her guardian until it
after 10 years. What is the amounts to P45, 000. When will
amount at the end of 15 years? the girl receive the money if the
fund is invested at 8%
compounded quarterly?
 (1 + 𝑖)𝑛 − 1 Problem 1
ANNUITIES 𝐹 = 𝐴[ ] What are the present worth and the accumulated amount
𝑖 of a 10-year annuity paying P10,000 at the end of each
Annuity is a series of equal payments (made in each year, with the interest at 15% compounded annually?
period) for a given total period of time (1 + 𝑖)𝑛 − 1
𝑃 = 𝐴[ ]
𝑖(1+ )𝑛
Types of Annuity or
❑ Ordinary Annuity 1 − (1 + 𝑖)−𝑛
❑ Annuity Due 𝑃 = 𝐴[ ]
❑ Deferred Annuity
𝑖
❑ Perpetuity
P – value of sum of money at present
Ordinary Annuity F – value or sum of money at some future time
An ordinary annuity is a series of equal payments made A – a series of periodic, equal amounts of money
at the end of consecutive periods over a fixed length of n – number of interest periods
time. i – interest rate for interest period

Problem 2
Mr. Reyes borrows P600, 000 at 12% compounded
annually, agreeing to repay the loan in 15 equal annual
payments. How much of the original principal is still
unpaid after he has made the 8th payment?
 Problem 3 ANNUITY DUE
What is the future worth of P600 deposited at the end of
every month for 4 years if the interest is 12% Annuity due is an annuity whose payment is due
compounded quarterly? immediately at the beginning of each period.

1 − (1 + 𝑖)− 𝑛−1
𝑃 = 𝐴[ + 1]
𝑖

(1 + 𝑖)𝑛+1 − 1
𝐹 = 𝐴[ − 1]
𝑖

Problem 1
Problem 4
What is the future worth of Php1000 yearly deposited at
What is the Present worth of P500 deposited at the end
2% annual interest for 10 years if the payments are made
of every three months for 6 years if the interest rate is
at the beginning of each year?
12% compounded semi-annually?
Problem 2
A man bought an equipment costing P60,000 payable in
12 quarterly payments, each instalment payable at the
beginning of each period . The rate of interest is 24%
compounded quarterly. What is the amount of each
payment?

Problem 3
A certain property is being sold and the owner received
two bids. The first bidder offered to pay Php400, 000
each year for 5years each payment is to be made at the
beginning of each year. The second bidder offered to pay
Php240,000 first year, Php360, 000 the second year and
Php540, 000 each year for the next 3 years, all payments
will be made at the beginning of each year. If money is
worth 20% compounded annually, which bid should the
owner of the property accept?
DEFERRED ANNUITY Problem 2
A deferred annuity is one where the first payment is Determine the present worth of a deferred annuity,
made several periods after the beginning of the annuity consisting of 10 semi-annual payments, each Php 1,000,
the first at the end of the third year. Money is worth 14%
compounded semi annually.

PERPETUITY
Problem 1
A man loans Php 187, 400 from a bank interest at 5% A perpetuity is an annuity in which the payments
compounded annually. He agrees to pay his obligations continue indefinitely.
by paying 8 equal annual payments, the first being due at
the end of 10 years. Find the annual payment?
Problem 1 Assignment
`Creekside Engineering wants to establish an
engineering scholarship in honor of its founder, Jane Find the present value in peso of a perpetuity Php 15,000
Freeborn. The endowment will be placed in a savings payable semi-annually if the money is worth 8%
account by the university, and the interest income will be compounded quarterly.
available for the scholarship. The account’s interest rate
is 6%, and the scholarship amount is $3000 per year.
What is the required endowment?

Problem 2 Discount Rate of Discount

What amount of money invested today at 15% interest The rate of discount is the discount on
can provide the following scholarships: Php 30,000 at Discount on a negotiable paper is the one unit of principal for one unit of time
the end of each year for 6 years, Php 40,000 for the next difference between the present worth
6 years, and Php 50,000 thereafter? (the amount received for the paper in
cash) and the worth of the paper at
some time in the future (face value of
the paper principal). Discount is interest
paid in advance.

*Difference between future worth and

present worth.

Discount = Future worth – Present

worth
Problem 1 Problem 3
A man borrows P10,000 from a loan firm. The rate of A man borrowed P5,000 from a bank and agreed to pay the
simple interest is 15%, but the interest is to be deducted loan at the end of 9months. The bank discounted the loan
from the loan at the time money is borrowed. At the end of and gave him 4,000 in cash. a) What was the rate of
one year he has to pay back P10,000. What is the actual rate discount? b) What was the rate of interest? c) what was the
of interest? rate of interest for one year?

Problem 2
Mr. Jessie Dytianquin borrowed a money from a bank. He Inflation
received from the bank P1, 342 and promises to repay Inflation is the increase in the price for goods and services from
P1,500 at the end of 9months. Determine the simple interest one year to another, thus the decreasing the purchasing power of
rate and the corresponding discount rate or often referred to money.
as the “Banker’s discount”.
𝐹𝐶 = 𝑃𝐶 (1 + 𝑓)𝑛
Where
PC = Present cost of the commodity
FC = Future cost of the same commodity
f = Annual inflation rate
n = number of years
Problem 1 If interest is being compounded at the same time that
An item presently costs P1,000. If inflation is at the rate of inflation is occurring. The future worth will be
8% per year, what will be the cost of the item in two years?
𝑃(1 + 𝑖)𝑛
𝐹=
(1 + 𝑓)𝑛

Problem 3

A man invested P10,000 at an interest rate of 10%

compounded annually. What would be the final amount of
his investment, in term’s of today’s peso, after five years?
Inflation remains the same at the rate of 8% per year.

If an inflammatory economy, the buying power of money

decreases as costs increases. Thus,

𝑃
𝐹=
(1 + 𝑓)𝑛

Where F is the future worth in today’s peso, of a present

amount P.

Problem 2
An economy is experiencing inflation at annual rate of 8%.
If this continues, What will P1,000 be worth two years from
now in terms of today’s peso.
 CAPITALIZED COST Problem 1: Problem 2:
Determine the capitalized cost of a structure that A new engine was installed by a textile plant at a cost of
One of the most important applications of perpetuity is in capitalized
requires an initial investment of P1,500,000 and an P300,000 and projected to have a useful life of 15
cost. The capitalized cost(cc) of any property is the sum of the first cost
annual maintenance of P150, 000. Interest is 15%. years. At the end of its useful life, it is estimated to have
and the present worth of all costs of replacement, operation and
maintenance for a long time or forever. a salvage value of P30,000. Determine its capitalized
cost if interest is 18% compounded annually.
Case I: No replacement, only maintenance and or operation every
period

Capitalized Cost (CC) = First cost (FC)+ Present worth of

perpetual operation and maintenance (O.M/i)

CC = FC + O.M / I = FC + A / i
A A A

CC – Capitalized Cost
FC – First Cost
A - Operating and Maintenance cost
i - interest rate
RC – Reconstruction Cost, if not stated RC = FC
SV – Salvage Value, if not stated
SV = 0
L – Economic or useful life

Case III: Replacement, maintenance, and or operation every period Problem 3:

Case II: replacement only, no maintenance and or operation Determine the capitalized cost of a research
Capitalized Cost (CC) = First cost (FC)+ Present worth of cost of laboratory which requires P5, 000, 000 for original
Capitalized Cost (CC) = First cost (FC)+ Present worth of perpetual operation and maintenance (O.M/i) + Present worth of construction; P100,000 at the end of every year for the
perpetual replacement (S / (1 + i )k – 1) cost of perpetual replacement first 6 years and then P120,000 each year thereafter
for operating expenses, and P500,000 every 5 years
CC = FC + S / (1 + i )k - 1 CC = FC + (O.M / i)+ [S / (1 + i )k – 1] for replacement of equipment with interest at 12% per
annum?
 AMORTIZATION Problem 1 Period Outstanding Interest due at Payment Principal Ending
A debt of P5,000 with interest at 12% compounded Principal the end of the repaid at the balance
Amortization is an accounting technique semi-annually is to be amortized by equal semi- period end of the
used to periodically lower the book value of annual payments over the next 3 years. The first is period
a loan or an intangible asset over a set period of due in 6months. Find the semi-annual payment and
time. Concerning a loan, amortization focuses on construct an amortization schedule.
spreading out loan payments over time. When
applied to an asset, amortization is similar
to depreciation

Amortization is a method of repaying a debt, the

principal and interest included, usually by a series of
equal payments at equal interval time.
DEPRECIATION Purposes of Depreciation Problem 1
Depreciation is the decrease in the value of physical 1. To provide for the recovery of capital which has An electronic balance costs P90,000 and has
property with the passage of time. been invested in physical property estimated salvage value of P8,000 at the end of its
2. To enable the cost of depreciation to be charged to 10years life time. What would be the book value
Definitions of Values the cost of producing products or services that after three years, using the straight line method in
Value, in commercial sense, is the present worth of all result from the use of the property solving for the depreciation?
future profits that are to be received through ownership of
a particular property.
The market value of a property is the amount which are Depreciation Methods
willing buyer will pay to a willing seller for the property 1. Straight Line Method
where each has equal advantage and is under no 2. Sum-of-the Year’s Digit(SYD)
compulsion to buy or sell. 3. Sinking Fund
4. Double Declining Balance (DDB)
The utility or use value is what the property is worth to the
owner as an operating unit. Use the following symbols for solving the different
Book value, sometimes called depreciated book value, is depreciation methods
the worth of a property as shown on the accounting L = Useful life of the property in years
records of an enterprise. Co= Original Cost
Salvage or resale value is the price that can be obtained SV = value at the end of life, the scrap value
d = annual cost of depreciation
from the sale of the property after it has been used. Cn = book value at the end of n years
Scrap value is the amount the property would sell for it Dn = depreciation up to age n years
disposed off as junk .

Sum-of-the Year’s Digit(SYD) Period Original Depreciation Book

Straight Line Method
Period (L) Original Depreciati Book Sum-of-the-years' digits (SYD) is an
This method assumes that the loss in (L) cost(Co) (d) value (Cn)
cost(Co) on (d) value (Cn) accelerated method for calculating an
value is directly proportional to the age
asset's depreciation.
of property
Problem 1 Problem 1
A structure costs P12,000 new. It is estimated to Period Original Depreciation Book A firm brough an equipment for P56,000. Other
have a life of 5 years with a salvage value at the (L) cost(Co) (d) value (Cn) expenses including installation amounted to P4,000.
end of life of P1,000. Using SYD, Determine the The equipment is expected to have a life of 16 years
book value at the end of each year. with a salvage value of 10% of the original cost.
Determine the book value at the end of 12 years
using a Sinking fund method at 12% interest

Sinking Fund Method

The sinking fund method is a technique for depreciating
an asset while generating enough money to replace it at
the end of its useful life.
As depreciation charges are incurred to reflect the
asset’s falling value, a matching amount of cash is
invested.

Annual depreciation(d) = Annual Matching investment

Problem 2 Problem 1
An industrial plant bought a generator set for 90,000. A certain type of machine loses 10% of its Period Original Depreciation Book
Other expenses including installation amounted to value each year. The machine costs P2,000 (L) cost(Co) (d) value (Cn)
10,000. The generator set is to have a life of 17 years originally. Make out a schedule showing the
with a salvage value at the end of life of 5,000. yearly depreciation, the total depreciation and
Determine the depreciation charge during the 13th year the book value at the end of each year for 5
and the book value at the end of 13 years by the sinking years.
fund method at 12%

Declining Balance Method

The declining balance method is an accelerated
depreciation system of recording larger depreciation
expenses during the earlier years of an asset's useful life
and recording smaller depreciation expenses during the
asset's later years
Double Declining Balance Method Problem 1
A plant bought an equipment for P220,000
and used it for 10 years, the life span of the
equipment. What is the book value of the
equipment after 5 years od use? Assume a
Straight Line Method Schedule Given: scrap value of P22,000 for textbook declining
Period Original Depreci Book balance method and P20,000 for the double
(L) cost(Co) ation (d) value declining method.
(Cn)

Problem 2
Double Declining Balance Method Determine the rate of depreciation, the total
depreciation up to the end of the 8th year and the
book value at the end of 8th years for an asset that
costs P15,000 new and has estimated scrap value
of P2,000 at the end of 10years by the declining
balance method and the double declining
balance method
 Problem 1 Problem 2
BONDS
A bond is a certificate indebtedness of a corporation usually for a F – face value A man wants to make 14% Mr. Romualdo bought a bond having a face
C redemption or disposal price (often equal to F) nominal rate interest compounded value of P1,000 for P970. The bond rate was 14%
period usually not less than 10 years and guaranteed by a mortgage
on a certain assets of a corporation or its subsidiaries. Bonds are r – bond rate per period semi-annually on a bond nominal and interest payments were made at him
issued when there is need for capital such as for expansion of the n – number of periods before redemption investment. How much should the semi-annually for a total of 7 years. At the end of the
plant or the services rendered by the corporation. i – investment rate or yield period man be willing to pay now for a seventh year, he sold the bond to a friend at a price
P – value of the bond n periods before 12% . Php 10,000-bond that will that resulted a yield of 16% nominal on his
redemption mature in 10 years and pays investment. What was the selling price?
interest semi-annually.

Problem 3 Problem 4
A company has issued 10-year bonds, A 1,500-bond which will mature in
with face value of 100,000 in 1,000 10 years and with a bond rate of
units. Interest at 16% is aid quarterly. If 15% payable annually is to be
an investor desires to earn 20% nominal redeemed at the end of this
interest on 100,000 worth of these period. If it is sold now for 1,390,
bonds, what would the selling price determine the yield at this price.
have to be?
 RATE OF RETURN

Rate of return is a measure of the effectiveness of an investment of capital. It is a financial efficiency.

When this method is used, it is necessary to decide whether the computed rate of return is sufficient to justify
the investment.

The advantage of this method is to easily understood by management and investors.

The applications of the rate of return method is controlled by the following conditions. A single investment of
capital at the beginning of the first year of the project life and identical revenue and cost data for each year.
The capital investment is the total amount of capital investment required to finance the project , whether equity
or borrowed.

Rate of Return = net annual profit / capital investment

MARR (Minimum Attractive Rate of Return)

Four (4) Methods

1. PRESENT WORTH (PW) METHOD
2. FUTURE WORTH (FW) METHOD
3. ANNUAL WORTH (AW) METHOD
4. PAYBACK (PAYOUT) PERIOD METHOD

Present Worth(PW) Method Future Worth(PW) Method

- If the present worth of net cash flows is equal - If the future worth of net cash flows is equal
to or greater than zero, the project is justified to or greater than zero, the project is justified
economically. economically.

Example 1
An investment of 270,000 can be made in a
project that will produce a uniform annual
revenue of 185,400 for 5 years and then have a
salvage value of 10% of the investment. Out-of-
pocket costs for operation and maintenance will
be 81,000 per year. Taxes and insurance will be
4% of the first cost per year. The company
expects capital to earn not less than 25% before
income taxes. Is this desirable investment? What
is the payback period of the investment?
Annual Worth(AW) Method BREAK-EVEN ANALYSIS Revenue = FC + VC
- If the excess of annual cash inflows over
annual cash outflows is not less than zero the Break-even analysis tells you how many units But Revenue is also Selling income(SI) or Sales
proposed investment is justified – is valid. of a product must be sold to cover the fixed and income
variable costs of production.
Selling Income = Selling Price per unit x no. of
General formula: unit/s
Profit = Revenue – Cost
SI = FC +VC
Break-even Point
Profit = 0

Therefore,
Revenue = Cost

Cost:
1. Variable Cost (VC)
- Variable cost = Original Cost per unit (OCpu) x
no. of unit/s = OC x n

2. Fixed Cost (FC)

Payback (Pay-out) Period Method Example 1

- The payback period is commonly defined as the length of time required
to recover the first cost of an investment from the net cash flow A construction supplies sells an item for 200
produced by that investment for an interest rate of zero. each. If the manufacturing cost isP100,000
per month and the labor is P30 per unit. How
many units must be sold to be a breakeven
point?
 Example 3
Example 2
An electronic store that sales transistors
A manufacturing company sells its item P20 pays their lot space P200,000 per year. If the
per unit. The Maintenance cost per month is transistor can be sold P8 per unit while
`P40,000 and the laborcost per unit is P4. If manufacturing cost P1.25 per unit. Calculate
each unit manufacturing cost is P8. Calculate the number of units that must be sold per
the volume of sales per month to be a month to achieve breakeven.
breakeven.