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Engineering economics chp. 2
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Terms in this set (25)
fixed cost
constant, independent of the output or activity level. The annual cost of property taxes for a production facility is a _____ cost, independent of the production level and number of employees.
variable cost
does depend on the output or activity level. The raw material cost for a production facility is a ______ cost because it varies directly with the level of production.
total cost
to provide a product or service over some period of time or production volume is the total fixed cost plus the total variable cost.
Total variable cost
(Variable cost per unit) (Total number of units)
marginal cost
the variable cost associated with one additional unit of output or activity. A direct labor marginal cost of $2.50 to produce one additional production unit is an example _______ cost.
average cost
the total cost of an output or activity divided by the total output or activity in units. If the total direct cost of producing 400,000 is $3.2 million, then the _________ ________ per unit is $8.00.
breakeven point
output level at which total revenue is equal to total cost.
BEP
FC/(SP - VC)
where
BEP = breakeven point
FC = fixed costs
SP = selling price per unit
VC = variable cost per unit
sunk cost
a past cost that cannot be changed and is therefore irrelevant in engineering economic analysis.
One exception is that the cost basis of an asset installed in the past will likely affect the depreciation schedule that is part of an after-tax economic analysis.
opportunity cost
the cost associated with an opportunity that is declined.It represents the benefit that would have been received if the opportunity were accepted.
recurring cost
one that occurs at regular intervals and is anticipated.
nonrecurring cost
one that occurs at irregular intervals and is not generally anticipated.
incremental cost
represents the difference between some type of cost for two alternatives.
cash cost
a cash transaction, or cash flow.
book cost
not a cash flow, but it is an accounting entry that represents some change in value.
Life-cycle costs
refer to costs that occur over the various phases of a product or service life cycle, from needs assessment through design, production, and operation to decline and retirement.
per-unit model
a simple but useful model in which a cost estimate is made for a single unit, then the total cost estimate results from multiplying the estimated cost per unit times the number of units.
segmenting model
partitions the total estimation task into segments.Each segment is estimated, then the segment estimates are combined for the total cost estimate.
Cost indexes
can be used to account for historical changes in costs. The widely reported Consumer Price Index (CPI) is an example.
Cost at time B
(Cost at time A) (IVB / IVA).
B is the current time. Let IVA denote the index value at time A and IVB denote the current index value for the cost estimate of interest.
power-sizing model
accounts explicitly for economies of scale. For example, the cost of constructing a six-story building will typically be less than double the construction cost of a comparable three-story building.
To estimate the cost of B based on the cost of comparable item A
Cost of B =
(Cost of A) [ ("Size" of B) / ("Size" of A) ] x
where x is the appropriate power-sizing exponent
Learning curve cost estimating
based on the assumption that as a particular task is repeated, the operator systematically becomes quicker at performing the task.
b = learning curve exponent =
log (learning curve rate in decimal form) / log 2.0
TN = time estimate for unit N =
(T1) (N)b
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