2 - Engineering Costs and Cost Estimating Engineering Costs...

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1 K. M. Bafna IME, WMU IME 310-2 1 of 14 Engineering Costs and Cost Estimating WARNING The Power Point slide presentation following this slide is copyrighted by Dr. Kailash M. Bafna, Professor, Western Michigan University. This entire presentation or any parts thereof may not be used for any purpose without the explicit written permission of Dr. Kailash M. Bafna. K. M. Bafna IME, WMU IME 310-2 2 of 14 Engineering Costs and Cost Estimating Engineering Costs Cost Estimating Cash Flow Diagrams K. M. Bafna IME, WMU IME 310-2 3 of 14 Engineering Costs 1. Fixed Costs : A cost that does not change with time, output, etc. 2. Variable Cost : A cost that is directly variable (changes) with time, output, activity level, etc. 3. Marginal Cost : The difference in cost for producing one more unit of output. 4. Average Cost : The total cost for a given output divided by the number of units of output. 5. Breakeven Point : The level of business activity at which the total costs to produce the product, goods, or services is equal to the revenues generated by that level of product, goods, or services. In other words, there is no profit nor any loss. K. M. Bafna IME, WMU IME 310-2 4 of 14 Engineering Costs Breakeven chart (see Fig 2-2): Output level Cost Loss Profit Total Revenue Total Cost Breakeven Point
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2 K. M. Bafna IME, WMU IME 310-2 5 of 14 Engineering Costs 6. Sunk Cost : Money already spent due to a decision made in the past. This cost should be disregarded when making current decisions since such decisions cannot change the past. 7. Opportunity Cost : This is associated with using available resources in one activity instead of another. When we use a resource in one activity, we give up the opportunity of using it in another activity. 8. Recurring Cost : Cost occurring at regular intervals such as oil change for the car (say done every 5,000 miles), etc. 9. Non-recurring Cost
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This note was uploaded on 04/07/2008 for the course IME 310 taught by Professor Kailashbafna during the Spring '07 term at Western Michigan.

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2 - Engineering Costs and Cost Estimating Engineering Costs...

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