Engineering%20Economics_CH2

Engineering%20Economics_CH2 - Review Ch. 1 Introduction to...

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Review Ch. 1 Introduction to Engineering Economy
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Objective You can be the best engineer in the world in your field. In addition to engineering knowledge , you need understanding of engineering economics which gives you the business mind
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Engineering Projects (EE, ME, CE, IE, BE,…) Alternatives (Profit/Revenue) -Single alternative: Ch.5 evaluating a single project - Multiple alternatives Ch.6 comparing multiple projects Cost: Time considerations -Interest: Ch.4 time value of money -Depreciation: Ch.7 Depreciation Ch.2: cost concept Ch 3: cost estimation Ch.8 price changes and exchange rates Ch.9 replacement Ch.10 – 14 others Economic environments Ch.7 taxes Ch.8 price changes and exchange rates Overview of engineering economics
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7 fundamental 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 your decisions
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Engineering Economics Ch. 2 Cost Concepts and Design Economics
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The objective of Ch. 2 is to analyze short-term alternatives when the time value of money is not a factor.
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Cost Classification Fixed, Variable, and Incremental costs Fixed costs : Costs that are constant and unaffected by activity level (or output quantity). Examples : Rent, Insurance, Taxes on facilities Variable costs : Costs that vary with the activity level. Example : Utility (Gas/Electricity), Materials, labor.
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Incremental cost : Additional cost that results from increasing the output of a system by one or more unit(s). Incremental cost of producing 10 more units at 60 units = $8 Output per day Total cost per day 60 0 120 $8 10 units 60 70 Fixed cost Variable cost Incremental cost
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• Example: Albert plans to charter a bus to take his friends to see a concert in the city. Albert’s costs: Item Cost Bus Rental $ 100 Concert Ticket $ 12.50/person Gas Expense $ 75 Bus Driver $ 50 Refreshments $ 7.50/person Q1) Which of the above are fixed and which are variable costs?
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Fixed costs: Item Cost Bus Rental $ 100 Gas Expense $ 75 Bus Driver $ 50 Total $ 225 Variable costs: Item Cost Concert Ticket $ 12.50/person Refreshments $ 7.50/person Total $ 20/person Q2) What is Albert’s total cost if he takes q people to the city?
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Engineering%20Economics_CH2 - Review Ch. 1 Introduction to...

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