Chapter 2 Cost Concepts and Design Economicsx - Cost Concepts and Design Economics Introduction cost estimating(top down bottom up Cost

Chapter 2 Cost Concepts and Design Economicsx - Cost...

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Cost Concepts and Design Economics
Meaning of Cost
Cost Terminology Fixed Costs They are constant or unchanging regardless of the level of output or activity e.g. Costs for factory floor space stays the same regardless of the production quantity, number of employees, and the level of work-in-process. Variable Costs They vary with the level of output or activity e.g. Labor costs since they depend on the number of employees Total Costs Total cost = Total fixed cost + Total variable cost
Cost Terminology Marginal Cost The variable cost for one more unit Used to decide whether the additional unit should be made, purchased, or enrolled in. Average Cost The total cost divided by the number of units Used to attain an overall cost picture of the investment on a per unit basis.
Cost Terminology Output TFC TVC TC MC AC 0 50 0 50 - 1 50 50 100 50 100 2 50 78 128 28 64 3 50 98 148 20 49.3 4 50 112 162 14 40.5 5 50 130 182 18 36 6 50 150 200 20 33.3 7 50 175 225 25 32.1 8 50 204 254 29 31.8 9 50 242 292 38 32.4 10 50 300 350 58 35 11 50 385 435 85 39.5
Cost Terminology Sunk Costs
Cost Terminology Opportunity Costs
Cost Terminology Recurring and Nonrecurring Costs Recurring Costs Costs referring to any expense that is known, anticipated, and occurs at regular intervals. Modeled as cash flows that occur at regular intervals. Nonrecurring Costs One-of-a-kind expenses that occur at irregular intervals. Difficult to plan for or anticipate from a budgeting perspective, both in terms of timing and size. You don’t need to worry about paying them again and again. e.g. fire or theft losses, installing a new machine, emergency maintenance expenses, moving expenses.

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