PRESENT ECONOMY

 Present Economy involves the analysis of

problems for manufacturing a product or
rendering a service based on present or
immediate costs.
 Present Economy studies usually occur when
the effects of time such as interest and
depreciation are negligible.
 Present economy analysis is employed when
the alternatives to be compared will provide
the same result and the length of time
involved in the study is relatively short.
 Present economy studies occur in the
following situations:
 Selection of materials
 Selection of method to be used
 Selection of design
 Selection of site location for a project
 Comparison of proficiency among workers
 Economy of tool and equipment maintenance
 Economy of number of workers
Selection of Material
In manufacturing a product it is usually
happens that two or more materials are
available and such materials will be equally
satisfactory. The problem therefore reduces
to which among the materials will result in
the most economical product and at the
same time give the best results.
example1
A diesel engine uses Type A filter and high-
grade lubricant oil consisting $5.50 per liter. With
this filter, the oil and the filter have to be changed
every 500 hours of operation, and 5 liters of oil
have to be added every 100 hours. This filter costs
$148 a piece. Eighty liters of oil fill the engine.
Another type, filter B, costing $120 may be
used with a lower grade of oil costing $4.80 per
liter. However, if this filter is used, the oil and filter
have to be changed every 300 hours, and 10 liters
are added after each 150 hours the engine is used.
Which type of filter and oil would you
recommend?
Selection of Method
In digging ditches or irrigation canals,
manual labour or a ditch digging machine
may be used and both methods will give
satisfactory results. In mechanical
operations a product may be made by two
or more methods giving equivalent results.
Example 2
A construction company in Manila will
bid on the digging of an irrigation canal in a
nearby province which measures 2 meters
wide, 1 meter deep, and 2 km long. Twenty
labourers will be employed at P120 each
per day, and they can dig, on the average of
½ cubic meters per hour. In addition, 2
foreman will also be employed at P250 each
per day.
 A dicth-digging machine may be rented at a
cost of P750 a day, in actual use and in transit to
and from the construction site. In actual use, fuel
and oil will cost P280 a day. Freight charges for
transporting the machine will be P1200 each way.
The machine operator accompanies the machine
and is paid P280 each day. The services of 2 laborers
would also be needed, in addition to the services of
the machine. The machine can dig 1 cubic meter
every 4 minutes.
Allowing P20,000 for profit and contingencies,
determine the lowest bid price of the company.
Selection of Design
In the design of a machine to produce a
certain product, the engineer responsible
for the work will usually make as many
designs as possible and from which, by a
process of elimination, he will select the
design best suited for the work to be done
with particular care being given to the one
which will do the work with the utmost
economy.
Example 3
A company manufactures 1,000,000 units of
a product yearly. A new design of the
product will reduce materials cost by 12%,
but will increase processing cost by 2%. If
materials cost is $1.20 per unit and
processing will cost $0.40 per unit, how
much can the company afford to pay for the
preparation of the new design and making
changes in equipment?
Site selection
In the choice of a factory site many factors
are to be considered, among which are the
cost of the land, the construction cost at
the different possible sites, the availability of
skilled labour, and many other factors. In
highway or dam construction, the location
of the borrow pit will affect the cost of the
earth to be transported.
Example 4
A certain masonry dam requires 200,000
cubic meters of gravel for its construction.
The contractor found two possible sources
for the gravel with the following data:
 SOURCE A SOURCE B
AVERAGE DISTANCE, GRAVEL PIT TO 3.0 KM 1.2 KM
DAM SITE
GRAVEL COST/CU.M AT PIT $10.00
PURCHASE PRICE OF PIT $800,000
ROAD CONSTRUCTION NECESSARY $450,000
OVERBURDEN TO BE REMOVED AT 90,000 CU.M
$4.20 PER CUBIC METER
HAULING COST PER CU.M PER KM $4.00 $4.00

Which of the two sites will give lesser

cost?
Comparison of Proficiency of
Workers
In industrial operations where the efficiency
of workers is a factor affecting costs, it is
usually observed that workers have varying
efficiencies. Where the proficiencies of
workers can be translated into monetary
values, efficient and diligent workers are
paid higher wages.
Example 5
Two workers, A and B, produce the same
product on identical machines. A receives $25
per hour and he produces 100 units per hour.
B is able to produce 120 units per hour. The
machine rate or cost of operation of the
machines used by them is $100 per hour.
 Determine the cost per piece for worker A.
 Determine the hourly wage of worker B in
order that his cost per piece will equal that
of A.
Economy of Tool and Equipment
Maintenance
 In many activities, tools have to be
sharpened from time to time, and
equipment have to be kept in optimum
operating condition all the time.
Example 6
A machine used for cutting materials in a
factory has the following outputs per hour
at various speeds and requires periodic
tool regrinding at the intervals cited.

SPEED OUTPUT PER TOOL

HOUR REGRINDING
A 200 PIECES EVERY 8 HRS
B 250 PIECES EVERY 7 HRS
C 280 PIECES EVERY 5 HRS
A set of tools costs P1,800 and can be ground
twenty times. Each regrinding costs P18 and
the time needed to regrind and change tools is
1 hour. The machine operator is paid P28 per
hour including the time the tool is changed.
The tool grinder who also sets the tools to
the machine is paid P25 per hour. The hourly
rate chargeable against the machine is P54,
regardless of machine speed. Which speed is
the most economical?
Economy in the Utilization of
Personnel
In many industrial operations it is observed
that a certain number of workers
cooperating on a specific phase of the work
will lead to the highest productivity. An
increase beyond this number will often
cause the taking into effect of the Law of
Diminishing Returns.
Example 7
A contractor has a job which should be
completed in 100 days. At present, he has
80 men on the job and it is estimated that
they will finish the work in 130 days. Of the
80 men, 50 are each paid $120 a day, 25 at
$180, and 5 at $250 a day. For each day
beyond the original 100 days, the
contractor has to pay $500 liquidated
damages.
 How many more men should the
contractor add so that he can complete
the work on time?
 If of the additional men, 2 are paid $180 a
day, and the rest at $120 a day, would the
contractor save money by employing
more men and not paying the fine?