Eng. Econ Module 2 Part 1

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In common usage, it is the monetary value of goods andservices that producers and consumers purchase.

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Cost

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the measure of the alternative opportunities foregone in the choice of one good or activity over the other

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Opportunity Cost.

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• Are unaffected by changes inactivity level over a feasible range of operations for the capacity or capability available

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FIXED COST

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Are those associated with anoperation that varies in total with the quantity of output or other measures of activity level.

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VARIABLE COST

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Is the additional cost (or revenue) that results from increasing the output of a system by one (or more) units. • It is often associated with “GO – NOGO” decisions that involves a limited change in output or activity level.

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INCREMENTAL COST

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Are cost that can be reasonably measured and allocated to a specific output or work activity. • Involves costs in creating, developing, and releasing a product

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DIRECT COST

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It Is difficult to attribute or allocate to a specific output or work activity. • Is the Cost not directly related to the development of a business product or service

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INDIRECT COST

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Are planned cost per unit ofoutput that are established inadvance of actual production orservice delivered. Are cost that can be reasonably measured and allocated to a specific output or work activity.

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STANDARD COST

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• A cost that involves payment in cash. • Requires the cash transaction from “one pocket to another.”• It a term used in cash basis accounting that refers to the recognition of expenses as they are paid in cash.

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CASH COST

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• Is also known as Acquisition Cost; isthe price originally paid for aninvestment. • It is also referred to as Book value • It is the cost of an asset asrecorded in the company’saccounts, which may be different to its real value.

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BOOK COST

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Is a past cost that cannot be changed and is therefore irrelevant in engineering economic analysis.

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SUNK COST

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• Is the cost associated with anopportunity that is declined. • It represents the benefit that would have been received if the opportunity were accepted.

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OPPORTUNITY COST

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• Occurs in a situation in which any given product is supplied by a large number of vendors and there is no restriction on additional suppliers entering the market.

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PERFECT COMPETITION

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• Exists when a unique product or service is only available from a single supplier and that vendor can prevent the entry of all others into the market.

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PERFECT MONOPOLY

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• Are those products or services that are directly used by people to satisfy their wants

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CONSUMER GOODS AND SERVICES

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Are used to produce consumer goods and services or other producer goods.

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PRODUCER GOODS AND SERVICES

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Is the Total Amount of income Generated by the sale of goods or services related to the company's primary operations.

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Total Revenue

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Is constant over a wide range of activities,

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FIXED COST

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Vary in total with the volume of output.

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Variable Cost

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Are simple design models intended to illustrate the importance of cost in the design process.

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Cost-Driven Design Optimization

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Is the capital required for most the activities in the acquisition phase.

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INVESTMENT COST

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Includes many of the recurring annual expense items associated with the operation phase of the life cycle.

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OPERATION & MAINTENANCE COST( O&M)

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Includes those nonrecurring costs of shutting down the operation and retirement and disposal of assets at the end of the life cycle. • Normally, costs associated with personal, materials, transportation, and one-time special activities can be expected.

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DISPOSAL COST

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Refers to a summation of all the costs related to a product, structure, system, or service during its life span.

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LIFE-CYCLE COST

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Begins with an analysis of the economic need or want.

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ACQUISITION PHASE

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the production, delivery, or construction of the end item(s) or service and their operation orcustomer use occur.

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OPERATION PHASE