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This chapter builds on the cost concepts learned in the previous chapters, and appliesthem to some specific engineering economy problems.2
When alternatives for accomplishing a specific task are being compared over oneyear or less and the influence of time on money can be ignored, engineeringeconomic analyses are referred to as present economy studies. Examples that fitthese criteria are determining the total cost in a material selection, make-or-buydecisions, and trade-offs in energy efficiency studies. Each of these examples will bestudied in more detail in this video.3
But before we study these problems, we want to introduce two rules for selecting thebest alternative. In case revenues or other economic benefits vary among thealternatives, these should be taken into account in the analysis. This means, that inthis case, we should choose the alternative that maximizes overall profitability ofdefect-free output. By defect-free output, we mean output that is useful and can besold with profit. When revenues or other economic benefits are not present or areconstant among the alternatives, there is no need to take them into account. In thiscase, we can choose the alternative that minimizes the total cost per defect-free unitof output.4
The first type of present economy studies aims to optimize the total cost in materialselection. This seems a straightforward problem, though there are often differencesin shipping costs, stock sizes and resulting scrap that require some attention andmight make the problems more complex than initially thought.5

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