This summary
+380.000 other summaries
A unique study tool
A rehearsal system for this summary
Studycoaching with videos
Remember faster, study better. Scientifically proven.
Summary  Engineering Economy

1 Introduction to Engineering Economy

What are the 7 principles of engineering economy?
 Develop the Alternatives;
 Focus on the Differences;
 Use a Consistent
Viewpoint;  Use a Common Unit of Measure;
 Consider all Relevant Criteria;
 Make Uncertainty
Explicit; Revisit yourDescisions;
 Develop the Alternatives;

2.1 Cost Terminology

Give the definition of variable costThe cost associated with an operation that
varies in total with thequantity ofoutput or other measures of activity. 
Give the definition of fixed costThe costs that are
unaffected by changes in activity level over afeasible range of operations for the capacity/capability available. 
Give [6] examples of fixed cost
 Insurance and taxes on facilities
 General management
Administrative salaries  License fees
 Interest costs
 Borrowed capital
 Insurance and taxes on facilities

Give the definition of
incremental costIncremental cost (or incrementalrevenue ) is the additional cost (orrevenue ) that results from increasing theoutput of a system by one (or more) units.
Often quite difficult to determine since so manyfactors are involved 
Give the definition of recurring costs
Recurring costs are the costs that arerepetitive and occur when an organizationproduces similar goods or services on a continuing basis.
Includingvariable costs because they repeat with each unit ofoutput . 
Give the definition of
nonrecurring costsNonrecurring costs are the costs that are notrepetitive even though the total expenditure may becumulative over a relatively short period of time. 
Give [2] examples of nonrecurring costs
 Development cost
 Establishment cost capability/capacity.

Give the definition of direct costsDirect costs are costs that can be reasonably measured and allocated to a specific output or work activity. Such as labour and material cost.

Give the definition of
indirect costs and a different namingIndirect costs are costs that are difficult to attribute orallocate to a specific output or work activity.
Overhead cost 
Explain the term normally considering indirect costsWhen
allocating directly to a specific output involvestoo much effort, theallocation is done through a selectedformula . Such as,proportional .
This is done through established costs per unit since these costs are associated with a certain level of production. 
Give [4] examples of overhead cost
 Electricity
 General repairs
 Property taxes
 Supervision
 Electricity

Give the definition of standard costRepresentative costs per unit of output that are established in advance of actual production or service delivery. Anticipated with direct labor hours, materials and overhead categories (with established cost per unit)

Give the definition of cash costA cost that involves payment of cash is called a cash cost and results in a cash flow.

Give the definition of noncash cost, include a different naming and a most common example.Noncash cost also referred to as book cost do not involve cash payments.
depreciation charged for the use of assets. 
Give the definition of sunk costsCosts that have occured in the past and has no relevance to estimates of future costs and revenues related to an alternative course of action.

Give the definition of opportunity costOpportunity 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.
A student could work and earn 20 000 but chooses to go to school and spends 5000. The opportunity cost of going to school for that year is 25 000 : 5000 cash outlay and 20 000 income foregone. 
Give the definition of lifecycle costSummation of all the costs, recurring and nonrecurring, related to product, structure system or service during its life span.

Lifecycle
 What [2] phases does it exist of?
 Where are the most costs made?
 Where can the most costs be saved?
The greatest potential for achieving lifecycle cost savings is early in the acquisition phase. 
Give the definition of investment costCapital required for most of the activities in the acquisition phase

Give the definition of the term working capitalFunds required for current assets (other than fixed assets such as equipment, facilities etc.) that are needed for the startup and support of operational activities.

Give the definition of operation and maintenance costIncludes many of the recurring annual expense items associated with the operation phase of the life cycle.

What has a major part of operation and maintenance cost? [5]Five primary resource areas
 People
 Machines
 Material
 Energy
 Information

What are the disposal cost?Nonrecurring costs of shutting down the operation and the retirement and disposal of assets at the end of the life cycle.
Read the full summary
This summary. +380.000 other summaries. A unique study tool. A rehearsal system for this summary. Studycoaching with videos.
Latest added flashcards
What are the 2 formulas used in monte carlo simulations? normally distributed  uniform distribution random event
Outcome value = mean + [random normal deviate * standard deviation]
simulation outcome = A + (RN/RNm) (BA)
simulation outcome = A + (RN/RNm) (BA)
When dealing with an assumed normal distribution, statistically independent variables and linear combinations how do you calculate the variance, mean and the probability of the PW
E(PW) = sum Ck * E(Fk )
V(PW) = sum (Ck )^{ 2} * E(Fk )
ck = coefficient
Fk = periodic net cash flow
Z = (PW  E(PW) / SD(PW)
then look up in the table.
Example 12.5
V(PW) = sum (Ck )^{ 2} * E(Fk )
ck = coefficient
Fk = periodic net cash flow
Z = (PW  E(PW) / SD(PW)
then look up in the table.
Example 12.5
What does a large standard deviation against the mean imply.
Large standard deviation indicates high risk.
When the variance is large what does this mean?
There is large risk involved because of a higher amount of diverse and unknown factors.
Given two independent variablesZ = XYHow do you calculate the mean and the variance of Z
E(Z ) = E(X)* E(Y)
V(Z ) = V(X^{ 2})V(Y^{2} )  (E(X)E(Y))^{ 2}
V(
How to calculate the mean and the variance of the followingE(cX)V(cX)
E(cX ) = c * E(X)
V(cX ) = c ^{2} * var(X)
V(
How to calculate the mean and variance?
E(x ) = x * p(x )
var(x) = x^{ 2} * p(x)  [E(X)^{ 2} ]
var(x) = x^{ 2} * p(x)  [E(X)^{ 2} ]
What does the BC ratio address?
The ratio of benefits against disbenefits (monetary) can be used to select a project.
Give the definition of costeffectiveness
What do you do with taxes on property and insurance and income taxes?
Include taxes on property and insurances in the cashflow and after that calculate the amount of income tax paid.