Intro Flashcards
Companies exist for one reason
to make money
involves the systematic evaluation of the economic
merits of proposed solutions to engineering problems.
Engineering economy
are those unaffected by changes in activity level over a feasible range of
operations for the capacity or capability available.
Fixed costs
Typical fixed costs include
insurance and
taxes on facilities, general management and administrative salaries, license fees, and interest
costs on borrowed capital
are those associated with an operation that varies in total with the quantity of
output or other measures of activity level.
Variable costs
Example of variable costs
the costs of material and labor used
in a product or service are variable costs, because they vary in total with the number of output
units, even though the costs per unit stay the same
is the additional cost (or revenue) that results
from increasing the output of a system by one (or more) units
incremental cost (or incremental revenue)
are costs that can be reasonably measured and allocated to a specific output or
work activity.
Direct costs
are costs that are difficult to allocate to a specific output or work activity.
Normally, they are costs allocated through a selected formula (such as proportional to direct
labor hours, direct labor dollars, or direct material dollars) to the outputs or work activities. For
example, the costs of common tools, general supplies, and equipment maintenance in a plant
are treated as indirect costs.
Indirect costs
are planned costs per unit of output that are established in advance of actual
production or service delivery. They are developed from anticipated direct labor hours,
materials, and overhead categories (with their established costs per unit)
Standard costs
A cost that involves payment of cash and results in a cash flow
cash cost
are costs that do not involve cash payments but rather represent the recovery of
past expenditures over a fixed period of time.
Book costs
most common example of book cost
depreciation charged for the use of assets such as plant and equipment
is one that has occurred in the past and has no relevance to estimates of future
costs and revenues related to an alternative course of action. It is common to
all alternatives, is not part of the future (prospective) cash flows, and can be disregarded in an
engineering economic analysis. For instance, these are nonrefundable cash outlays,
such as earnest money on a house or money spent on a passport.
sunk cost
is incurred because of the use of limited resources, such that the
opportunity to use those resources to monetary advantage in an alternative use is foregone
opportunity cost
This term refers to a
summation of all the costs related to a product, structure, system, or service during its life
span
life-cycle cost
The life cycle may be divided into two general time periods
acquisition phase and
the operation phase.
begins with an analysis of the economic need or want— the analysis
necessary to make explicit the requirement for the product, structure, system, or service.
acquisition phase
the production, delivery, or construction of the end item(s) or service
and their operation or customer use occur. This phase ends with retirement from active
operation or use and, often, disposal of the physical assets involved
operation phase
is the capital required for most of the activities in the acquisition phase.
In simple cases, such as acquiring specific equipment, an investment cost may be incurred as
a single expenditure.
investment cost
(investment cost) On a large, complex construction project, however, a series of
expenditures over an extended period could be incurred. This cost is also called
capital
investment.
includes many of the recurring annual expense
items associated with the operation phase of the life cycle. The direct and indirect costs of
operation associated with the five primary resource areas—people, machines, materials,
energy, and information—are a major part of the costs in this category
Operation and maintenance cost (O&M)
