ISE 2014 Chapter 2 Section 2.

Cost Driven Design Optimization -

Problem 2-22 Set Up

The cost of operating a large ship (Co) varies as the square of its
velocity (v); specifically, Co = knv2 , where n = trip length in
miles and k = a constant of proportionality. It is known that at 12
miles/hour the average cost of operation is $100 per mile. The
owner of the ship wants to minimize the cost of operation, but it
must be balanced against the cost of the perishable cargo (Cc )
which the customer has set at $1,500 per hour.

At what velocity should the trip be planned to minimize the total

cost (CT ), which is the sum of the cost of operating the ship and
the cost of perishable cargo?

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Pr. 2-22. Solution (per approach on p. 48-49)

1. The design variable is v, the velocity of the ship.

2. Our objective is to find the velocity that minimizes total
cost.
CT = CO + CC
What is the value of Co?

What is the value of Cc?

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3. The first derivative of the cost model with respect to
velocity is:
dC T
= 0 =
dv

4. Solving the first derivative equation for v yields:

5. The second derivative is:

d 2CT
2 =
dv

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Section 2.4. Cost Driven Design Optimization –
Another Example

Automobile doors can be reinforced for the added safety

of passengers inside. Measured in terms of door weight
(W), safety (S) can be described with the following linear
function:
S = 8W + 80
But added weight reduces the fuel economy of the
automobile and its aesthetic appearance. The resultant
penalty cost (C) for safety, expressed as a function of
weight, is graphed below.

70
Cost in 60 C = 6 + 0.1 W2
Dollars
50
(C)
40
30
20
10

10 20 30 40 50 60 70
Pounds of Weight (W)

(a) If the automobile must have doors, how much should

they weigh (i.e., what is the optimal weight of the
door)?
(b) Over what range of weight is the added safety
economical (cost effective)?
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Section 2.5. Present Economy Studies
- Cost analyses where the influence of time on money is
not a significant consideration.

Examples:
• Material Selection (also tool selection)
• Make versus Purchase Studies
• Alternative Machine Speeds
• Optimizing Design Parameters
- bridge span length
- design tolerances and quality

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ISE 2014 Present Economy Sec. 2.5

Rule 1 Maximize profit (revenues and/or profits are not

constant)

Y' Alt. 0.97Y

A
Input
is identical
Y' Alt.
0.90Y
B
Examples (1) mining operations where the body is fixed in
size
(2) equipment capacity (e.g., aircraft seating) is
fixed

5.1
ISE 2014 Present Economy Sec. 2.5

Rule 2 Minimize costs/expenses (revenues are constant or

non-existent)

X/0.9 Alt. X'

C Output
is identical
X/0.8 Alt.
X'
D
Examples (1) hp or kw delivered to a process or workload

(2) production to satisfy known demand

(e.g., concrete at a building site)

5.2
Section 2.5. Present Economy –
The Cost of Drying Our Hands

Have you ever wondered why so many electric warm-air

hand dryers are replacing paper towel dispensers in
restrooms nowadays? They’re cheaper, that’s why!
Assume the cost of a single paper towel is $0.005 (many
of us use two).
If the electric hand-dryer is rated at 1000 watts, let’s
compute the cost of its use for a 15-second cycle.

Given: 1 kW = 1000 watts; electricity costs $0.07/kWh

Then: Cost for 1 blow-dry cycle equals

 15 sec onds  1hour  $0.07 

1kW    
 60 sec onds / min ute  60 min utes  kW − hr 
Or
 $0.07 
0.00417kW − hr   ≅ $0.0003
 kW − hr 

What about the cost of the hand-dryer itself versus the

towel dispenser? What about the comfort, convenience
and time required to dry your hands?
Are electric hand-dryers the way to go? YES? NO?

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Section 2.5.1. Material Selection Example
After machining, the finished volume of a certain metal part is 0.17 cubic
inch. Data for two types of metal being considered for manufacturing the
part are given below:

Brass Aluminum

Machining time/piece (min) 0.64 0.42

Cost of material ($/lb) 0.96 0.52
Scrap value ($/lb) 0.24 none
Cost of operator ($/hr) 12.00
Density of material (lb / in3) 0.31 0.10
Volume of raw material (in3) 0.30 0.45

Determine the cost per part for both types of material and recommend
which material to use.

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Example Continued

Brass:
Labor: (0.64 min/pc)($12.00/hr)(1 hr/60 min) = $0.128/pc
Material: ($0.96/lb) (0.31 lb/ in3 ) (0.3 in3 )
-(0.3 in3 / pc - .17 in3 / pc)($0.24/lb)(0.31 lb/in3 )
= $0.079/pc
Total Cost = $0.207/pc

Aluminum:
Labor: (0.42 min/pc)($12.00/hr)(1 hr/60 min) = $0.084/pc
Material: ($0.52/lb - $0.00/lb)(0.10 lb/in 3 ) (0.45 in 3 )
= $0.023/pc
Total Cost = $0.107/pc

(Choose Aluminum to minimize total cost)

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Section 2.5.3. Example - Make versus Purchase Studies

Given:
The company is currently purchasing a part and is
considering manufacturing the part in-house. This
company is not operating at full capacity, and no other
use for the excess capacity is contemplated. Unit costs
are given below.
Manufacture Purchase
Direct Material $1.50
Direct Labor 1.35
Overhead - variable 0.90
Overhead - fixed 4.25

Total Unit Cost $8.00 $7.50

Find:
Should the part be made in-house or purchased?
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Example Continued
Assumptions:
- Utilizing the excess capacity has no opportunity costs.
- This product will not change fixed overhead for the plant.

Solution: Focus on differences - what really changes?

Manufacture Purchase Difference
Direct Material $1.50 $1.50
Direct Labor 1.35 1.35
Overhead - variable 0.90 0.90
Overhead - fixed 4.25 0.00
Total Unit Cost $8.00 $7.50 $3.75

The incremental cost to make the product in-house is

actually $3.75 per unit versus $7.50 to purchase.

Q: What happens if fixed overhead changes as a result of

producing the product in house?

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