chapter_2_cost_estimate

chapter_2_cost_estimate - Chapter 2 Engineering Costs and...

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Copyright Oxford University Press 2009 Chapter 2 Engineering Costs and Cost Estimating
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Copyright Oxford University Press 2009 Chapter Outline Engineering Costs Cost Estimating and Estimating Models
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Copyright Oxford University Press 2009 Learning Objectives Understand various cost concepts Understand various cost estimation models Be able to estimate engineering costs with various models
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Copyright Oxford University Press 2009 Alaska North Slope Natural Gas: 35 trillion cubic feet (TCF) reserve U.S. market: Annual U.S. natural gas demand: 18 TCF by 2010 Estimated consumption rate: increase 2-3% annually Project: Bring Alaska North Slope natural gas to U.S. Estimated infrastructure costs: $20 billion Estimated project duration: 9-year Design capacity: 4.5 billion cubic feet per day Vignette: North Slope Natural Gas Pipeline
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Copyright Oxford University Press 2009 Project Alternatives: #1: 2,140 miles of pipeline from Prudhoe to Chicago #2: 800 miles of pipeline from Prudhoe to liquefaction plant, then shipped on ocean-going tankers Questions to Consider: What type of cost estimating should be utilized? When a project is estimated to take 5-10 years to complete, should cost estimates be adjusted for inflation, regulatory changes, and changes in economic environment? Should large-scale project be required to meet the same rate of return requirements as smaller projects? Are there any ethical issues related to economics, the environment, safety, etc., that should be considered? Vignette: North Slope Natural Gas Pipeline
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Copyright Oxford University Press 2009 Types of Costs Fixed Costs & Variable Costs Marginal Costs & Average Costs Sunk Costs & Opportunity Costs Recurring & Non-recurring Costs Incremental Costs Cash Costs & Book Costs Life-Cycle Costs
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Copyright Oxford University Press 2009 Fixed Costs and Variable Costs Fixed Costs: constant, independent of the output or activity level. Property taxes, insurance Management and administrative salaries License fees, and interest costs on borrowed capital Rental or lease Variable Costs: Proportional to the output or activity level. Direct labor cost Direct materials
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Copyright Oxford University Press 2009 Breakeven Analysis Total Variable Cost = Unit Variable Cost * Quantity TVC = VC * Q Total Cost = Fixed Cost + Total Variable Cost TC = FC + VC * Q Total Revenue = Unit Selling Price * Quantity TR = SP * Q where TVC = Total variable cost VC = Variable cost per unit Q = Production/Selling quantity FC = Fixed costs TR = Total revenue SP = Selling price per unit
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Copyright Oxford University Press 2009 Breakeven Analysis Breakeven point: the output level at which total revenue is equal to total cost.
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chapter_2_cost_estimate - Chapter 2 Engineering Costs and...

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