This document provides an overview of basic cost concepts and engineering economy terms. It defines key cost terms like first cost, operation and maintenance costs, fixed costs, and variable costs. It also explains time value of money concepts like present value, future value, and compound interest. Methods for engineering economy analysis are discussed, including break-even analysis, payback period, net present worth, and internal rate of return. Cash flow diagrams are introduced as a way to visualize and simplify cash flows over time for decision making.
This document discusses key concepts in engineering economics such as time value of money, interest rates, cash flows, and economic policies in India. It provides an overview of simple and compound interest, and how interest compounds over time. It also summarizes India's economic policies including fiscal policy, monetary policy, liberalization, privatization, and globalization implemented since 1991. These reforms aimed to make the Indian economy more market-oriented and expand the role of private and foreign investment.
This document provides an introduction to economics. It defines economics as the study of how limited resources are used to satisfy unlimited human wants. The objectives of economics are outlined as a high level of employment, price stability, efficiency, an equitable distribution of income, and growth. The flow of goods, services, resources and money payments in a simple economy is described involving households, business firms, and the payments between them. The law of supply and demand and the factors influencing supply and demand are explained. Engineering economics is introduced as analyzing alternatives within a project to compare monetary returns. The concepts of cost, revenue, profit, break even analysis, and margin of safety are defined in the context of economics.
Engineering Economics and cost Analysis - conceptsgokulfea
This document provides an overview of important concepts and formulas in engineering economics and cost analysis. It defines key terms like economics, supply and demand, efficiency, cost elements, value engineering, replacement analysis, and cash flow. It also outlines different cost types such as fixed, variable, marginal and sunk costs. Finally, it lists formulas for calculating break even point, profit volume ratio, present and future worth, compound interest, sinking funds, and effective interest rates.
This document provides an overview of engineering economics and cost analysis concepts across 5 units. Unit I introduces economics and key concepts like supply and demand, costs, efficiency, and engineering economics. It defines engineering economics as dealing with methods to minimize costs and maximize benefits for businesses. Unit II covers value engineering and interest formulas. Unit III discusses cash flow methods to compare alternatives. Unit IV is about replacement and maintenance analysis. Unit V is on depreciation methods. The document provides a comprehensive introduction to foundational topics in engineering economics and cost analysis.
This document provides an overview of engineering economics and management concepts across 4 sections:
1. It introduces microeconomics, macroeconomics, economic and technical decisions, demand and supply concepts, and break-even analysis.
2. It defines microeconomics as the study of particular markets and segments of the economy like consumer behavior and firm theory. It also outlines characteristics, scope, and importance of microeconomics.
3. It states that macroeconomics deals with aggregates like national income rather than individual quantities. It discusses key issues in macroeconomics like economic growth, business cycles, and unemployment.
4. It describes the process of managerial decision making and sources of uncertainty. It also distingu
This document provides an introduction and syllabus for an engineering economics course taught by Dr. Mohsin Siddique. It outlines the course details including the instructor's contact information, course goals and objectives, topics to be covered, assessment criteria, textbook information, and tentative schedule. The course aims to provide engineering students with the basic concepts of engineering economics to aid in decision making for engineering projects. Key topics include cost estimation, interest calculation, present worth analysis, rate of return analysis, and depreciation. Students will be assessed through quizzes, exams, assignments, and a final exam.
Engineering economic importance & applicationabdus sobhan
Application of engineering or mathematical analysis and synthesis to decision making in economics.
The knowledge and techniques concerned with evaluating the worth of commodities and services relative to their cost.
Analysis of the economics of engineering alternativesThis course has to do with money and success.
Most of us want some measure of success in life.
For better or for worse, money (and economics) has a lot to do with success.
This document discusses key concepts in engineering economics such as time value of money, interest rates, cash flows, and economic policies in India. It provides an overview of simple and compound interest, and how interest compounds over time. It also summarizes India's economic policies including fiscal policy, monetary policy, liberalization, privatization, and globalization implemented since 1991. These reforms aimed to make the Indian economy more market-oriented and expand the role of private and foreign investment.
This document provides an introduction to economics. It defines economics as the study of how limited resources are used to satisfy unlimited human wants. The objectives of economics are outlined as a high level of employment, price stability, efficiency, an equitable distribution of income, and growth. The flow of goods, services, resources and money payments in a simple economy is described involving households, business firms, and the payments between them. The law of supply and demand and the factors influencing supply and demand are explained. Engineering economics is introduced as analyzing alternatives within a project to compare monetary returns. The concepts of cost, revenue, profit, break even analysis, and margin of safety are defined in the context of economics.
Engineering Economics and cost Analysis - conceptsgokulfea
This document provides an overview of important concepts and formulas in engineering economics and cost analysis. It defines key terms like economics, supply and demand, efficiency, cost elements, value engineering, replacement analysis, and cash flow. It also outlines different cost types such as fixed, variable, marginal and sunk costs. Finally, it lists formulas for calculating break even point, profit volume ratio, present and future worth, compound interest, sinking funds, and effective interest rates.
This document provides an overview of engineering economics and cost analysis concepts across 5 units. Unit I introduces economics and key concepts like supply and demand, costs, efficiency, and engineering economics. It defines engineering economics as dealing with methods to minimize costs and maximize benefits for businesses. Unit II covers value engineering and interest formulas. Unit III discusses cash flow methods to compare alternatives. Unit IV is about replacement and maintenance analysis. Unit V is on depreciation methods. The document provides a comprehensive introduction to foundational topics in engineering economics and cost analysis.
This document provides an overview of engineering economics and management concepts across 4 sections:
1. It introduces microeconomics, macroeconomics, economic and technical decisions, demand and supply concepts, and break-even analysis.
2. It defines microeconomics as the study of particular markets and segments of the economy like consumer behavior and firm theory. It also outlines characteristics, scope, and importance of microeconomics.
3. It states that macroeconomics deals with aggregates like national income rather than individual quantities. It discusses key issues in macroeconomics like economic growth, business cycles, and unemployment.
4. It describes the process of managerial decision making and sources of uncertainty. It also distingu
This document provides an introduction and syllabus for an engineering economics course taught by Dr. Mohsin Siddique. It outlines the course details including the instructor's contact information, course goals and objectives, topics to be covered, assessment criteria, textbook information, and tentative schedule. The course aims to provide engineering students with the basic concepts of engineering economics to aid in decision making for engineering projects. Key topics include cost estimation, interest calculation, present worth analysis, rate of return analysis, and depreciation. Students will be assessed through quizzes, exams, assignments, and a final exam.
Engineering economic importance & applicationabdus sobhan
Application of engineering or mathematical analysis and synthesis to decision making in economics.
The knowledge and techniques concerned with evaluating the worth of commodities and services relative to their cost.
Analysis of the economics of engineering alternativesThis course has to do with money and success.
Most of us want some measure of success in life.
For better or for worse, money (and economics) has a lot to do with success.
Investment Analysis for private and Public sector projectsjimsd
The document discusses various concepts related to investment analysis for private and public sector projects. It covers timing of investments, discounting future cash flows, net present value (NPV) analysis, and internal rate of return (IRR). The key questions investment analysis aims to answer are whether to incur costs now for future benefits or use funds for immediate consumption. Private firms seek to maximize shareholder returns while public sectors aim to maximize community welfare.
The document discusses the importance of engineering economy in decision making for individuals, businesses, and government agencies. Engineering economy provides quantitative analysis techniques to evaluate and compare the costs and benefits of project alternatives over time. It helps structure the estimates needed to evaluate alternatives and select the most economically favorable option based on metrics like present worth, rate of return, and benefit-cost ratio.
This document provides an overview of engineering economics. It discusses how engineers apply economic principles to make cost-effective decisions when developing solutions to practical problems. Engineering economics involves analyzing cash flows, costs, benefits, and other factors over time to evaluate alternative projects and designs. The concepts of time value of money, interest, cash flows, and economic analysis allow engineers to maximize the efficient use of resources in their decision making.
This document outlines the key concepts and formulas covered in the Engineering Economics and Cost Analysis course. It discusses topics like profit calculation, break-even analysis, time value of money formulas, capital investment evaluation methods, depreciation techniques, replacement analysis, and public project evaluation. The course aims to teach students methods to make economic decisions that minimize costs and maximize benefits for business organizations.
This document discusses engineering economic decisions and principles. It covers the rational decision making process, types of strategic engineering economic decisions like equipment selection and replacement. It also discusses the role of engineers in business, predicting the future, and fundamental principles like nearby dollars being worth more. The five main types of engineering economic decisions are identified as service improvement, equipment selection, replacement, new products, and cost reduction. Time and uncertainty are key factors in any engineering economic project.
This document provides an overview of engineering economics and introduces some key concepts. It begins by defining economics as the study of how individuals and organizations allocate scarce resources. It then explains why engineering economy is important, as engineers must make economic decisions when selecting between alternatives. The main points covered include:
- Performing engineering economy studies involves formulating problems, estimating costs and outcomes of alternatives, and evaluating the best option.
- Basic concepts like utility, various costs (fixed, variable, average, marginal), opportunity costs, and life-cycle costs are introduced.
- Time value of money concepts like present and future worth will be covered in more detail later.
Training on Financial and Economic Project Evaluation tobiassommer2013
This document provides an overview of training on financial and economic project evaluation using cost-benefit analysis. The training covers understanding the concepts of financial/private and economic/social project evaluation, interpreting results, and understanding how evaluation fits into results-based project management. Key topics include identifying suitable projects for cost-benefit analysis, conducting market feasibility and technical studies, quantifying costs and benefits, discounting cash flows, and using metrics like net present value and internal rate of return to evaluate projects. The document emphasizes quantifying variables, considering all relevant costs and externalities, and accounting for risk and uncertainty through sensitivity analysis.
This document provides an overview of project economics concepts including:
- Introduction to project economics and the contribution of construction industry to the economy.
- Definitions of cost, price, and value as well as concepts like simple and compound interest, profit, and annuities.
- Economic concepts of demand, demand schedule, law of demand, demand curve, elasticity of demand, supply, supply schedule, supply curve, and elasticity of supply.
- Equilibrium price and amount as well as factors affecting price determination.
- Concepts of cost of capital, time value of money, and sources of project financing including debt and equity capital.
Engineering economics deals with evaluating the costs and benefits of engineering projects over time. It uses time value of money concepts like present and future value to analyze cash flows. Cash flows are summarized in diagrams with costs below and benefits above the time line. Equivalence techniques convert cash flows to a common point in time to compare project alternatives. Present worth analysis discounts all cash flows to the present using a discount rate to determine the net present value of projects.
The document provides an introduction to engineering economics. It defines economics and engineering economics, noting that engineering economics deals with the analysis and evaluation of factors that will affect the economic success of engineering projects. It discusses key concepts from economics used in engineering economics, such as scarcity, opportunity cost, demand and supply. It also outlines the basic guidelines for engineering economic analysis, including developing alternatives, focusing on differences among alternatives, using consistent and common units of measurement, and considering uncertainty. The document emphasizes that engineering economics is important for engineering decision-making involving questions about project priorities, designs, and economic worth.
This document provides an overview of engineering economics and key economic concepts. It discusses:
1. The unit introduces engineering economics and covers topics like demand analysis, elasticity, and forecasting techniques.
2. It defines economics and explains that economics studies how individuals and nations earn and spend money.
3. The key steps in engineering economic studies are outlined as the creative, definition, conversion, and decision steps.
This document contains a group presentation for an engineering economics course at the University of Liberia. The group, Capital Investors (Group B), presented on the topic of capital budgeting process. They defined capital budgeting and explained that it involves identifying, analyzing, selecting and implementing investment projects expected to span more than one year. The presentation covered the capital financing and allocation functions, sources of capital funds, models for determining costs of capital like CAPM and WACC, the separation principle, methods for project selection, types of projects, and the capital allocation process.
The document discusses social cost-benefit analysis (SCBA), which is used to evaluate the economic impact of projects on a national level. SCBA measures impacts such as foreign exchange earnings, taxation revenue, employment, and income distribution. It considers effects from the perspective of the financial analysis, economic analysis, and distributional analysis. The rationale for SCBA includes market imperfections, externalities, taxes/subsidies, concern for savings and redistribution, and merit wants. The document outlines approaches to SCBA, including shadow pricing of inputs/outputs, and discusses factors such as tradability, consumers' willingness to pay, and production costs.
Introduction to Engineering Economy is about engineering economy &The technological and social environments in which we live continue to change at a rapid rate.
In recent decades, advances in science and engineering have transformed our transportation systems, revolutionized the practice of medicine, and miniaturized electronic circuits so that a computer can be placed on a semiconductor chip.
1. The document describes the methodology used for a study on cost-benefit analysis. It outlines the theoretical framework, study area, sampling procedure, data collection, and methods of data analysis.
2. Cost-benefit analysis compares the total expected costs of a project or decision to the total expected benefits to see if benefits outweigh costs. It is a key tool for project evaluation and investment decisions.
3. The study will use cost-benefit analysis methods like benefit-cost ratio, net present value, and internal rate of return to evaluate the costs and benefits of fish farms in Akure, Nigeria.
This document discusses various cash flow analysis methods including present worth, future worth, rate of return, and annual equivalent. It provides examples and formulas for revenue-dominated and cost-dominated cash flows. Key points include:
- Present worth discounts all cash flows to time zero using a discount rate to find the maximum or minimum value. Future worth grows all cash flows using a rate to find the maximum or minimum value.
- Annual equivalent converts net present worth to an equivalent annual revenue or cost using a capital recovery factor for comparison.
- Rate of return finds the discount rate that sets the net present worth equal to zero to determine the highest returning project.
- Examples apply the methods to alternatives with
This document discusses various topics related to construction project management including:
- Project cost control methods like cost planning, direct costs, indirect costs, and total cost curves.
- Economic analysis methods for construction projects such as present worth, equivalent annual cost, and discounted cash flow.
- Depreciation analysis and break-even cost analysis for construction projects.
- The importance of cost planning and economic comparisons of alternatives in selecting the most cost-effective option.
- An example comparing the present worth of two alternatives for purchasing a concrete mixer to demonstrate the economic comparison method.
Chandragupta unified northern India in the 4th century BCE and defeated the Persian general Seleucus. He divided his empire into provinces and districts for administration and law enforcement. Chandragupta's advisor Kautilya wrote the Arthashastra, a guide for kings that supported strong central authority. In the 3rd century BCE, Emperor Asoka converted to Buddhism after a bloody battle and promoted Buddhist principles through edicts scattered across South Asia. The powerful Gupta Empire arose in the 4th century CE and saw economic prosperity through trade, as well as cultural and scientific achievements, but declined due to invasions starting in the 5th century CE, leaving India politically fragmented.
Investment Analysis for private and Public sector projectsjimsd
The document discusses various concepts related to investment analysis for private and public sector projects. It covers timing of investments, discounting future cash flows, net present value (NPV) analysis, and internal rate of return (IRR). The key questions investment analysis aims to answer are whether to incur costs now for future benefits or use funds for immediate consumption. Private firms seek to maximize shareholder returns while public sectors aim to maximize community welfare.
The document discusses the importance of engineering economy in decision making for individuals, businesses, and government agencies. Engineering economy provides quantitative analysis techniques to evaluate and compare the costs and benefits of project alternatives over time. It helps structure the estimates needed to evaluate alternatives and select the most economically favorable option based on metrics like present worth, rate of return, and benefit-cost ratio.
This document provides an overview of engineering economics. It discusses how engineers apply economic principles to make cost-effective decisions when developing solutions to practical problems. Engineering economics involves analyzing cash flows, costs, benefits, and other factors over time to evaluate alternative projects and designs. The concepts of time value of money, interest, cash flows, and economic analysis allow engineers to maximize the efficient use of resources in their decision making.
This document outlines the key concepts and formulas covered in the Engineering Economics and Cost Analysis course. It discusses topics like profit calculation, break-even analysis, time value of money formulas, capital investment evaluation methods, depreciation techniques, replacement analysis, and public project evaluation. The course aims to teach students methods to make economic decisions that minimize costs and maximize benefits for business organizations.
This document discusses engineering economic decisions and principles. It covers the rational decision making process, types of strategic engineering economic decisions like equipment selection and replacement. It also discusses the role of engineers in business, predicting the future, and fundamental principles like nearby dollars being worth more. The five main types of engineering economic decisions are identified as service improvement, equipment selection, replacement, new products, and cost reduction. Time and uncertainty are key factors in any engineering economic project.
This document provides an overview of engineering economics and introduces some key concepts. It begins by defining economics as the study of how individuals and organizations allocate scarce resources. It then explains why engineering economy is important, as engineers must make economic decisions when selecting between alternatives. The main points covered include:
- Performing engineering economy studies involves formulating problems, estimating costs and outcomes of alternatives, and evaluating the best option.
- Basic concepts like utility, various costs (fixed, variable, average, marginal), opportunity costs, and life-cycle costs are introduced.
- Time value of money concepts like present and future worth will be covered in more detail later.
Training on Financial and Economic Project Evaluation tobiassommer2013
This document provides an overview of training on financial and economic project evaluation using cost-benefit analysis. The training covers understanding the concepts of financial/private and economic/social project evaluation, interpreting results, and understanding how evaluation fits into results-based project management. Key topics include identifying suitable projects for cost-benefit analysis, conducting market feasibility and technical studies, quantifying costs and benefits, discounting cash flows, and using metrics like net present value and internal rate of return to evaluate projects. The document emphasizes quantifying variables, considering all relevant costs and externalities, and accounting for risk and uncertainty through sensitivity analysis.
This document provides an overview of project economics concepts including:
- Introduction to project economics and the contribution of construction industry to the economy.
- Definitions of cost, price, and value as well as concepts like simple and compound interest, profit, and annuities.
- Economic concepts of demand, demand schedule, law of demand, demand curve, elasticity of demand, supply, supply schedule, supply curve, and elasticity of supply.
- Equilibrium price and amount as well as factors affecting price determination.
- Concepts of cost of capital, time value of money, and sources of project financing including debt and equity capital.
Engineering economics deals with evaluating the costs and benefits of engineering projects over time. It uses time value of money concepts like present and future value to analyze cash flows. Cash flows are summarized in diagrams with costs below and benefits above the time line. Equivalence techniques convert cash flows to a common point in time to compare project alternatives. Present worth analysis discounts all cash flows to the present using a discount rate to determine the net present value of projects.
The document provides an introduction to engineering economics. It defines economics and engineering economics, noting that engineering economics deals with the analysis and evaluation of factors that will affect the economic success of engineering projects. It discusses key concepts from economics used in engineering economics, such as scarcity, opportunity cost, demand and supply. It also outlines the basic guidelines for engineering economic analysis, including developing alternatives, focusing on differences among alternatives, using consistent and common units of measurement, and considering uncertainty. The document emphasizes that engineering economics is important for engineering decision-making involving questions about project priorities, designs, and economic worth.
This document provides an overview of engineering economics and key economic concepts. It discusses:
1. The unit introduces engineering economics and covers topics like demand analysis, elasticity, and forecasting techniques.
2. It defines economics and explains that economics studies how individuals and nations earn and spend money.
3. The key steps in engineering economic studies are outlined as the creative, definition, conversion, and decision steps.
This document contains a group presentation for an engineering economics course at the University of Liberia. The group, Capital Investors (Group B), presented on the topic of capital budgeting process. They defined capital budgeting and explained that it involves identifying, analyzing, selecting and implementing investment projects expected to span more than one year. The presentation covered the capital financing and allocation functions, sources of capital funds, models for determining costs of capital like CAPM and WACC, the separation principle, methods for project selection, types of projects, and the capital allocation process.
The document discusses social cost-benefit analysis (SCBA), which is used to evaluate the economic impact of projects on a national level. SCBA measures impacts such as foreign exchange earnings, taxation revenue, employment, and income distribution. It considers effects from the perspective of the financial analysis, economic analysis, and distributional analysis. The rationale for SCBA includes market imperfections, externalities, taxes/subsidies, concern for savings and redistribution, and merit wants. The document outlines approaches to SCBA, including shadow pricing of inputs/outputs, and discusses factors such as tradability, consumers' willingness to pay, and production costs.
Introduction to Engineering Economy is about engineering economy &The technological and social environments in which we live continue to change at a rapid rate.
In recent decades, advances in science and engineering have transformed our transportation systems, revolutionized the practice of medicine, and miniaturized electronic circuits so that a computer can be placed on a semiconductor chip.
1. The document describes the methodology used for a study on cost-benefit analysis. It outlines the theoretical framework, study area, sampling procedure, data collection, and methods of data analysis.
2. Cost-benefit analysis compares the total expected costs of a project or decision to the total expected benefits to see if benefits outweigh costs. It is a key tool for project evaluation and investment decisions.
3. The study will use cost-benefit analysis methods like benefit-cost ratio, net present value, and internal rate of return to evaluate the costs and benefits of fish farms in Akure, Nigeria.
This document discusses various cash flow analysis methods including present worth, future worth, rate of return, and annual equivalent. It provides examples and formulas for revenue-dominated and cost-dominated cash flows. Key points include:
- Present worth discounts all cash flows to time zero using a discount rate to find the maximum or minimum value. Future worth grows all cash flows using a rate to find the maximum or minimum value.
- Annual equivalent converts net present worth to an equivalent annual revenue or cost using a capital recovery factor for comparison.
- Rate of return finds the discount rate that sets the net present worth equal to zero to determine the highest returning project.
- Examples apply the methods to alternatives with
This document discusses various topics related to construction project management including:
- Project cost control methods like cost planning, direct costs, indirect costs, and total cost curves.
- Economic analysis methods for construction projects such as present worth, equivalent annual cost, and discounted cash flow.
- Depreciation analysis and break-even cost analysis for construction projects.
- The importance of cost planning and economic comparisons of alternatives in selecting the most cost-effective option.
- An example comparing the present worth of two alternatives for purchasing a concrete mixer to demonstrate the economic comparison method.
Chandragupta unified northern India in the 4th century BCE and defeated the Persian general Seleucus. He divided his empire into provinces and districts for administration and law enforcement. Chandragupta's advisor Kautilya wrote the Arthashastra, a guide for kings that supported strong central authority. In the 3rd century BCE, Emperor Asoka converted to Buddhism after a bloody battle and promoted Buddhist principles through edicts scattered across South Asia. The powerful Gupta Empire arose in the 4th century CE and saw economic prosperity through trade, as well as cultural and scientific achievements, but declined due to invasions starting in the 5th century CE, leaving India politically fragmented.
The document discusses different sectors of the fishing industry in India. It describes the main industry, which involves catching fish and transporting/processing them. It also discusses the ancillary industry that supports the main industry through boat building, gear manufacturing, etc. Finally, it categorizes the fishing industry based on purpose into subsistence fishing, commercial fishing focused on profit, and recreational fishing done for leisure.
The document discusses fishing in Pakistan. It describes marine fishing which takes place in the sea and coastal areas, and inland fishing from rivers, lakes and dams. It provides details on fishing centers, types of fish caught, traditional and modern fishing methods used, and developments in the fishing industry and infrastructure in Pakistan. Key issues facing the fishing industry are also summarized such as water pollution, overfishing, threats to mangroves and weak infrastructure.
This Powerpoint Presentation is on the chapter Agriculture from Class 10 Geography in CBSE Board. The information included is solely from Class 10 Geography textbook.
The document discusses the ideological basis of Pakistan according to the 9th class Pakistan Studies textbook. It begins by defining ideology and discussing the ideology of Pakistan, which is based on Islam. It then provides examples of different types of ideologies such as religious, political, and economic ideologies. The rest of the document consists of questions and answers about topics related to the ideological basis of Pakistan, including the two-nation theory, the role of the Muslim League, and the evolution of the Pakistan ideology over time leading up to the creation of Pakistan in 1947.
The Gupta Empire ruled over northern India from 320 to 500 CE. Key rulers included Chandragupta I, who established the empire, Samudragupta who expanded its territory by defeating neighboring rulers, and Chandragupta II who presided over a golden age of prosperity through extensive trade networks. During this period, India experienced advances in areas such as mathematics, astronomy, medicine, sculpture, and literature as exemplified by the works of poet Kalidasa. However, invasions by the Huns in the 4th century led to the decline of the Gupta Empire and the fracturing of northern India into separate kingdoms.
1. The document discusses various cost concepts that are important for managerial decision making including opportunity costs, explicit vs implicit costs, historical vs replacement costs, fixed vs variable costs, and short-run vs long-run costs.
2. It explains the relationship between total, average, and marginal costs in both the short-run and long-run. In the short-run, total fixed costs remain fixed while variable costs change with output. In the long-run, all costs are variable.
3. Understanding the cost-output relationship is important for cost control, profit prediction, pricing, and other decisions. Cost is influenced by factors like scale of production, output level, input prices, and technology.
Difference between Cost, Value, Price, Rent, Simple and Compound Interest, Profit, Cash flow Diagram,
Annuities and its Types, Demand, Demand Schedule, Law of Demand, Demand Curve, Elasticity of Demand and Supply,
Supply Schedule, Supply Curve, Elasticity of Supply Equilibrium,
Equilibrium Price, Equilibrium Amount, Factors Affecting Price Determination
Law of Diminishing Marginal Utility, Law of Substitution, Concept of Cost of Capital,
Time Value of Money, Sources of Project Finance.
SPPU PUNE
CIVIL ENGINEERING
SECOND YEAR CIVIL ENGINEERING
2019 PAT SYLLABUS
SOLVED NUMERICALS
-Introduction
-Cost Concepts
-Opportunity Cost and Actual Cost
-Business Cost and Full Cost
-Explicit Cost and Implicit Cost
-Out-of-pocket Cost and Book Cost
-Fixed Cost and Variable Cost
-Total Cost
-Average Cost
-Marginal Cost and Marginal Revenue
-Sunk Cost
The document discusses different types of costs involved in production:
1) Total cost is the aggregate of all expenditures to produce a given output level. It includes total fixed cost plus total variable cost.
2) Total fixed cost refers to costs of fixed inputs that do not vary with output in the short run, such as rent, interest, and insurance.
3) Total variable cost refers to costs of variable inputs that vary with output, such as raw materials and wages. It increases with higher output.
4) Average and marginal costs are also discussed as important measures to analyze a firm's cost structure.
The document discusses the key factors of production - land, labor, capital and entrepreneurship - and different types of costs. It defines 13 different concepts of costs, including: fixed vs variable costs; historical vs replacement costs; explicit vs implicit costs; avoidable vs unavoidable costs; controllable vs uncontrollable costs; and accounting vs economic costs. The document provides explanations of each cost concept to help with business decision making and understanding financial statements.
Theory of Production and Cost, Break-even AnalysisKumar Pawar
This document summarizes a presentation on management topics including production theory, costs, and break-even analysis. It was created by three students - Kumar Pawar, Rangat Mehta, and Jay Kheni. The presentation covers the meaning of production, production functions, factors of production, laws of variable proportions and returns to scale. It also defines fixed and variable costs, total and average costs, marginal and opportunity costs. Finally, it explains break-even analysis including the objective to find the production volume where a firm will make a profit.
This powerpoint presentation is created by Gyanbikash.com for the students of class nine to ten from their accounting NCTB textbook for multimedia class.
The document discusses various types of costs including direct costs, indirect costs, fixed costs, variable costs, and mixed costs. It defines costs and provides examples of each cost classification. It also covers topics like contribution margin, break-even point, and how they are calculated using equations and graphical methods. The document is intended to educate people on finance and accounting concepts related to costs.
This document discusses cost concepts relevant for production planning and decision making. It defines different types of costs such as explicit vs implicit costs, direct vs indirect costs, private vs social costs, relevant vs irrelevant costs, economic vs accounting costs, separable vs common costs, and fixed vs variable costs. It also explores the relationship between production and costs, discussing how cost functions are related to production functions and how average and marginal costs are related to average and marginal products. Short-run cost functions are examined, showing how total, average, and marginal costs change at different output levels when some factors are fixed in the short-run.
This document discusses profit analysis and break-even analysis. It defines accounting profit and economic profit, explaining that economic profit includes both explicit and implicit costs. Short-run profit is maximized using fixed inputs, while long-run profit allows variable inputs to change. Break-even analysis determines the sales volume needed for total revenue to equal total costs. The key components of profit analysis and assumptions of break-even analysis are described. Approaches to measuring profits and uses of break-even analysis are also summarized.
PRINCIPLES OF BUSINESS DECISIONS
MODULE: COST ANALYSIS
CONTENT
Various concepts of cost
;Fixed cost and Variable cost
Opportunity cost and Outlay cost
Short term and Long term cost
Explicit cost and Implicit cost
Past and Future costs
Economics and Accounting cost
Out of pocket cost and Book cost
Incremental and Sunk cost
Avoidable and Unavoidable costs
Replacement and Historical cost
Shut down and Abandonment cost
DETERMINANTS OF COST
Introduction
General Determinants
Output Level
Prices of factors of production
Productivities of factors of production
Technology
COST OUPUT RELATIONSHIP
Short Run
Long Run
OPTIMUM FIRM
Meaning
Short Run
Long Run
Cost analysis refers to the study of how costs behave in relation to factors like output size, scale of operations, input prices, and technology. Cost is influenced by the size of the plant, with larger plants enjoying economies of scale. Cost also depends on output level, input prices, labor issues, technology, and managerial efficiency. Understanding different cost concepts is important for business decision making. Costs can be classified as fixed, variable, historical, replacement, explicit, implicit, avoidable, unavoidable, controllable, uncontrollable, and more.
- Cost analysis deals with the behavior of costs in relation to factors like output, scale of operations, input prices, and technology.
- Costs are classified as fixed and variable. Fixed costs remain constant while variable costs change with output.
- The cost-output relationship and break-even point are important for determining the optimal production level and profitability.
- Break-even analysis identifies the minimum sales needed to cover total costs. It helps managers with cost control, pricing, and other decisions.
Investment calculations and production automation in weldingOlli-Pekka Holamo
This document discusses factors to consider when evaluating investments in production automation, such as robots, using net present value calculations. It emphasizes that total costs, including indirect costs associated with current manual production processes, must be considered rather than just comparing direct labor costs to investment costs. Three categories of costs are identified: direct costs, indirect costs caused by current operations, and costs associated with resources over time like increasing labor costs. Key performance indicators should be used to compare the total costs per unit of current and proposed automated production concepts to determine the most profitable option.
Engineering economy is the analysis and evaluation of factors that will affect the economic success of engineering projects to recommend the best use of capital. It examines alternatives from a consistent viewpoint using monetary units, considering all relevant criteria like costs, benefits, risks and uncertainties. The principles of engineering economy guide developing alternatives, focusing on differences, using consistent units of measure, and revisiting decisions. Money-time relationships like interest, present worth, and future worth are key concepts in engineering economy analysis.
This document provides an overview of economics lecture content covering various topics:
1. It defines interest, interest rate, simple interest, and compound interest and provides formulas for calculating simple and compound interest.
2. It discusses problems involving simple and compound interest calculations.
3. It covers cash flows, inflation, cost accounting, and the accounting equation.
4. It defines depreciation concepts and methods like straight-line and declining balance. It also discusses taxes and taxable income.
This document provides an overview of engineering economics. It defines engineering economics as the application of economic principles and calculations to engineering projects. It is important because projects must be economically feasible even if technically sound. The document discusses key concepts in engineering economics including present and future value, variable and fixed costs, opportunity costs, and cost-driven design optimization. It also provides formulas and explanations for calculating the time value of money, present value, and future value. Engineering economics allows quantitative evaluation of investment alternatives and feasibility analysis of projects.
This document provides an overview of engineering economics concepts. It defines engineering economics as the application of economic principles and calculations to engineering projects. It is important because projects must be economically feasible to succeed. The document discusses key concepts like present value, future value, time value of money, equivalence, uniform series, discounted cash flow, minimum attractive rate of return, and internal rate of return which are important for evaluating the economic viability of projects. It also provides examples to illustrate how to apply these concepts in calculations.
Meaning of Cost Analysis
Basic Cost Concept
Basic concept of financial Accounting/ Accounting Rules-Problems
Depreciation
Methods of Depreciation -Problems
Break Even Analysis
Marginal Uses of BEA
This document defines key terms used in economic feasibility studies, including project life cycle stages of planning, construction, and operation, as well as the value of products and services and costs incurred. It discusses accounting concepts like revenue, expenses, profit, and return on investment. The time value of money is also introduced, noting that a shilling today is worth more than a shilling in the future. Methods for conducting economic feasibility studies are outlined, such as payback period, net present value, internal rate of return, benefit-cost ratio, and present value of costs.
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1. Sessions 9 & 10 - Basic Cost Concepts & Engineering
Economy
Why The Need To Manage Costs?
Money is the most liquid of resources, and like a liquid it can slip away very easily. It is
often said that if the money is available, any other resources can be obtained. This may be
a simplification, but it shows how important money is. Money is used for many purposes,
including capital and cost expenditure.
All economic analyses deal with costs. They are concerned with money being spent, how
it can be spent in the most economical way, and how as well as when it will be recovered
out of income.
Cost Terms
Terms Explanations
First Cost or Initial
Cost
The initial cost of capitalized asset, including purchase price,
transportation, installation and other related initial expenditure
incurred (such as training) to ready the asset for use.
Does not occur again once an activity is initiated.
Operation &
Maintenance Costs
Include labour costs for operating and maintenance personnel,
operating and maintenance supply costs, fuel and power costs, costs
of repair and spare parts, insurance, tax and other overheads.
These costs can be substantial, often exceeding the first cost in total
amount, though the timing of occurrence differs substantially.
These costs occur over time until the structure, system or
equipment is retired from service.
Fixed Cost or
Overhead Cost
Remains a constant charge on the business and contains all those
cost items which do not change with a change in production, e.g.,
depreciation, insurance & rental.
Variable Costs or
Direct Costs or
Incremental Costs
or Marginal Costs
Costs which vary in some relationship to the level of operational
activity. Their total amount goes up or down with the volume of
production. However, their costs per individual unit of production
remain almost constant.
Those costs, which can be identified as part of the cost of the
finished product. Consist of direct material & direct labour costs.
Variable costs are “incremental” in that each additional unit of
CIE 210 PS Notes Sessions 9 & 10 – Basic Cost Concepts & Engg Econ 06/11/10 WCH 1
2. production causes an added increment of cost.
Direct material cost The cost of material which can be identified with the finished
product. The material goes into the product and the quantity used
varies directly with volume.
Direct labour cost The cost of wages which can be traced directly to the final product
cost. This includes the wages of machine operators & those directly
involved in the manufacture of goods & services.
Indirect costs Those costs which cannot be directly identified with the finished
product. Classified as manufacturing expenses or overheads.
Consist of indirect material & indirect labour costs & other
manufacturing expenses.
Indirect material
cost
Materials whose usage does not depend on the volume produced.
Indirect materials include lubricants used to grease machines,
coolants and the cost of timber pallets in the warehouse. Such costs
are shared by all production units but cannot be measured directly
against individual items (a kind of overhead).
Indirect labour cost Includes the wages of supervisors, cleaners and security staff who
are not directly involved with the physical production of goods and
services. The cost of idle time due to delays, overtime premiums &
the provision of sick leave and holiday pay are also regarded as
indirect costs.
Other
manufacturing
expenses
All other indirect items fall within this area. Include heating &
lighting (electricity), plant depreciation, rent & insurance.
Life-cycle Cost The cost for the entire life-cycle of a product, and includes
feasibility, design, construction, operation and disposal costs.
The direct material, direct labour & manufacturing overheads are input costs to the
production system & initially represent the value of work-in-process.
As completed products emerge from the production system, costs are transferred out of
WIP inventory & placed in the finished goods inventory until they are sold. The cost of
goods sold can then be matched against sales to find the gross profit.
CIE 210 PS Notes Sessions 9 & 10 – Basic Cost Concepts & Engg Econ 06/11/10 WCH 2
3. Capital Investment Vs Operating Expense
The distinction between the above depends on the expected service life & the first cost.
Generally, items with long service lives & high first costs are treated as investments – they are
capitalized & increase the asset of the company. A capitalised item is depreciated over a
number of operating periods which coincide with the expected service life of the item. It is
tagged with an asset number & is physically counted during annual stock-taking or physical
inventory exercise.
Generally, the first cost of an equipment or plant includes the purchase price, transportation
cost, government taxes & duties and cost of installation.
Profit Selling or
Purchase
PriceGeneral
overheads &
Administrative
costs
Total
Costs
Operations
overheads (or
indirect costs)
Total
Operation
Cost
Direct labour
costs
Prime
cost
Direct material
costs
CIE 210 PS Notes Sessions 9 & 10 – Basic Cost Concepts & Engg Econ 06/11/10 WCH 3
4. Engineering Economy
In industrial engineering, it is often necessary to compare among alternative designs,
procedures, plans and methods. Since the available alternative courses of action involve
different amounts of investment and different operating costs and benefits, the inevitable
question is “Will it pay?” The method of solution requires us to express each alternative in
some common form and then choose the best, taking both the monetary and intangible factors
into account.
It answers one of 2 questions:
(1) Which of the choices considered is best from a financial point of view? (i.e., which
equipment offers the required service at lowest cost?), or
(2) What is the expected return on investment (ROI) in using this equipment? (i.e., if I
were to purchase this equipment, would I make a satisfactory return for the money
invested?).
In most computations, a minimum attractive rate of return (MARR) is used. This is the
smallest interest rate, or rate of return, at which one is willing to invest money. It represents
the interest rate a company expects to make on its investments.
Interest Rate
The interest rate is the rent charged on the money lent for a defined period of time.
Simple Interest
Under simple interest, the interest owed upon repayment of a loan is proportional to the
length of time the principal sum has been borrowed.
Compound Interest
Whenever the interest charged for any interest period is based on the remaining principal
amount plus any accumulated interest charged up to the beginning of that period, the
interest is said to be compounded. [Put simply, the interest earned is added to the
principal, and the total (principal + interest) is carried forward to the following period to
continue to earn interest.]
Compound interest is much more common in practice than simple interest, and the
interest obtained due to the effect of compounding is higher than that obtained from
simple interest calculation. The difference would be much greater for a larger amount of
money, a higher interest rate, or a greater number of interest periods.
Consider the following variables in an engineering economy problem:
CIE 210 PS Notes Sessions 9 & 10 – Basic Cost Concepts & Engg Econ 06/11/10 WCH 4
5. P = present value (or principal sum);
F = future value;
I = interest owed;
i = interest rate (in decimals) per year;
n= no. of interest periods
To calculate simple interest,
I = Pin, or F = P (1 + in).
To calculate compound interest,
F = P (1+ i) n
, or P = F / (1+ i) n
.
Another variable commonly used is the uniform annual amount A, which represents a
constant value, A, occurring at the end of each interest period over a continuous number
of interest periods.
Time Value Of Money
As money can earn a certain interest through its investment for a period of time, a dollar
received at some future date is not worth as much as a dollar in hand at present. The
relationship between interest and time leads to the concept of the time value of money.
[The concept of time value of money is related directly to the concept of opportunity cost.
If instead of receiving a certain sum right now, and you had to wait until the end of a
whole year for it, you would have lost the interest that you could have earned.]
The Future Value of Present Money
F = P (1+ i) n
,
The Present Value of Future Money
P = F / (1+ i) n
or F (1+ i) – n
.
Both present value and future value represent sums of money at points in time. The only
requirement is that present value precedes future value in time.
Functional Notation
(1+ i)n
is also given the factor notation: (F/P, i %, n) and 1 / (1+ i)n
given the notation
CIE 210 PS Notes Sessions 9 & 10 – Basic Cost Concepts & Engg Econ 06/11/10 WCH 5
6. (P/F, i %, n), where the top letter of the ratio is the sum of money you want to find, given
the bottom sum, i is the interest rate, and n the number of periods.
Interpreting The Functional Notation
F = P (F/P, i %, n) means “the calculated amount, F, at the point in time it occurs (i.e., n
periods from when P occurs), is equivalent to the known value of P at the point in time it
occurs, for the given interest rate, i %.” Tables of different values of i and n are available
for engineering economy calculations.
Economic Equivalence
In engineering economy, 2 things are said to be equivalent when they have the same
effect. When 2 or more alternatives are to be compared, their relative merits are often not
directly apparent from a simple statement of their future receipts and disbursements. To
compare, these amounts must first be placed on an equivalent basis, for example, at the
same point in time. When interest is earned, monetary amounts can be directly added only
if they occur at the same point in time.
The factors involved in the equivalence of sums of money are:
- the amounts of the sums;
- the times of occurrence of the sums; and
- the interest rate.
In the interest formulas, P occurs at the start of an interest period, and F and A payments
occur at the end of interest periods.
Depreciation
A fixed or physical asset decreases in value because of the reduction in usefulness with
the passage of time, usually over its expected service life. The process by which it loses
its value is called ‘depreciation’.
Regardless of the reason for a decrease in value of an asset, the depreciation should be
taken into account in engineering economy studies because of favourable income tax
allowances. Taxes are paid on net income less depreciation for the year, thus lowering the
taxes paid. [It is an operation cost, affecting the profitability of a company.]
Depreciation is usually charged once a year, in keeping with the end-of-year convention.
Book Value
The book value of an asset is the acquisition cost of an asset less its accumulated
CIE 210 PS Notes Sessions 9 & 10 – Basic Cost Concepts & Engg Econ 06/11/10 WCH 6
7. depreciation charges. It represents the current worth of an asset as indicated in the books
of accounts.
Straight-line (SL) Depreciation
The book value of the asset decreases linearly with time, because the same depreciation
charge is made each year. The yearly depreciation is determined by dividing the first cost
minus its salvage value by the life of the asset.
D t = (P – V) / n
where:
t = year,
D t = annual depreciation charge,
P = first cost,
V = salvage value, and
n = expected depreciable life or recovery period.
Since the asset is depreciated by the same amount each year,
Book value after t years, BV t = P – D t.
Cash Flow Diagrams
A cash flow diagram is a means of visualizing and simplifying the flow of receipts and
disbursements for the acquisition and operation of items in an enterprise.
The horizontal line is a time scale with progression of time moving from left to right, with the
interest periods or years written below the intervals of time. It is marked off in equal
increments, one per period, up to the duration of the project.
The arrows represent cash flows. Arrows may go in opposing directions as cash flows may
represent either costs or incomes. Costs, expenditures, payments and disbursements (negative
cash flows or cash outflows) will be shown as downward pointing arrows. Benefits, revenues,
incomes or receipts (positive cash flows or cash inflows) are shown as upward pointing
arrows. Arrow lengths are approximately proportional to the magnitude of the cash flow.
The “end-of-year” convention is used, where all disbursements and receipts (i.e., cash flows)
are assumed to take place at the end of the year in which they occur.
Expenses incurred before time = 0 are sunk costs and are not relevant to the problem.
However, salvage value is income, so it is drawn as positive.
The net cash flow is the arithmetic sum of receipts (+) and disbursements (–) that occur at the
same point in time.
CIE 210 PS Notes Sessions 9 & 10 – Basic Cost Concepts & Engg Econ 06/11/10 WCH 7
8. It is important to draw the cash flow diagram for any proposal as it does not only give us a
pictorial view of the cash flows, it also allows us to write the cash flow equation (with
functional notations) more easily.
A = $14,667/- F = $44,560/-
+
1 2 3 4 5 years
–
P = $123,545/-
E.g., NPW = – $123,545 + $14,667 (P/A, i %, 5) + $44,560 (P/F, i %, 5)
Once we know the interest rate, it is a matter of checking the interest factor tables, substitute
the factors into the equation, and calculate the NPW.
Procedure in Decision-Making
1) Define alternatives clearly and determine the differences in consequences;
2) Quantify these differences in terms of money;
3) Apply evaluation criteria to the quantifiable monetary figures to provide a basis
for objective decision making.
4) Consider other non-quantifiable factors before a final decision is made.
The no. of initial alternatives may be large but analysis of 6 major factors – cost, volume,
human resource constraints, technology, quality & reliability – typically reduces the large
number to only a few.
[Note: One alternative often ignored is to do nothing & maintain existing conditions.
CIE 210 PS Notes Sessions 9 & 10 – Basic Cost Concepts & Engg Econ 06/11/10 WCH 8
9. Basic Methods for Making Engineering Economy Studies
All engineering economy studies of capital projects should be made so as to include
consideration of the return that a given project will or should produce. As the patterns of
capital investment, revenue or saving flows and cost flows can be quite different in various
projects, there is no single method for making engineering economy studies that is ideal for all
cases.
There are 4 commonly used methods for comparing the relative financial merits of competing
alternatives in engineering economy problems:
(1) Break-even Analysis method;
(2) Payback Period method;
(3) Net Present Worth (NPW) method; and
(4) Internal Rate of Return (IRR) method.
The alternative selected will be that which offers the shortest payback period, the most return,
or is of the lowest cost, for the same investment.
Or, we can determine the Rate of Return by solving for i * and choosing the alternative
offering the greatest rate of return, irreducible considerations being equal.
Other methods are discussed in the IED module “Engineering Economy”.
Break-even Analysis
In this “Break-even” analysis, the relationship among cost, volume and profit are put
together graphically. It shows how much sales volume in units or dollar sales a company
needs to have in order to break even financially. The break-even point is that point of
activity (sales volume) where total revenues and total expenses are equal. It is the point of
zero profit or zero loss. In order to calculate break-even points, it is necessary to
determine fixed and variable costs for various sales volume.
At a level above this, total revenue is greater than total costs, and a profit is made. Below
this level of activity, total revenue is less than total costs and a loss is incurred. Decisions
pertaining to how many and how much to sell and the varying of the costs to achieve
certain maximized-profit position or minimized-loss position can be determined.
The formula for calculating the break-even quantity is given by:
SP x Q = FC + VC x Q,
Break-even Quantity, Q = FC / (SP – VC),
where SP is the unit selling price, VC is the unit variable cost, and FC the fixed costs
CIE 210 PS Notes Sessions 9 & 10 – Basic Cost Concepts & Engg Econ 06/11/10 WCH 9
10. (overheads).
The term (SP – VC) is called ‘contribution’. It is the amount by which the selling price
per unit exceeds the variable cost per unit (or total revenues exceed total variable costs).
Contribution margin is the excess of sales over variable expenses.
Assumptions:
1) All costs can be classified as either fixed or variable and these two costs remain
unchanged during the period involved;
2) Selling price remains constant regardless of volume.
We are considering only the quantitative aspects of this analysis. Non-quantitative aspects
are just as important, and have to be considered, but this cannot be done in an entirely
quantitative context.
The break-even quantity may be solved from the equation:
Sales = Variable Expenses + Fixed Expenses + Net Income.
Alternatively,
Break-even (units) = Fixed Expenses + Desired Net Income
Contribution Margin per unit
[It is more useful to talk about a break-even region, rather than a break-even point,
because as all costs can only be estimates and are never known precisely, changes in the
cost or revenue estimates will change the calculated break-even value. The term ‘point’
also gives a misleading impression of accuracy.]
Payback Period Method
This method is concerned primarily with the period of time required to recover an investment.
This is useful when there are different rates of investment and annual cash flow spread over
the period. The payback period is obtained when the cumulative cash flow curve intersects the
x-axis. The alternative that returns the initial investment in the shortest time period is
preferred.
Mathematically, payback period = net investment / net annual cash flow after taxes.
The merit of an investment may be judged by comparing the pay-back period with the
estimated life of the equipment.
This is the most popular method in general use. However, it will provide the wrong answer as
this method does not consider:
- the returns after payback (i.e., the economic life & the salvage value);
CIE 210 PS Notes Sessions 9 & 10 – Basic Cost Concepts & Engg Econ 06/11/10 WCH 10
11. - the time value of money during the economic life of the equipment.
The Net Present Worth (NPW) Method
The concept of PW discounts the future cash flows arising from an investment at a
predetermined standard rate of interest. This gives the present value which is then compared to
the amount being invested. To be realistically profitable, the NPW must be greater than the
sum invested. The rate considered is usually the cost of capital or MARR.
The criterion is that as long as the net present worth of the cash flows is equal to or greater
than zero, the project is economically justified.
However, there must be a common analysis period when comparing alternatives. It is incorrect
to compare the NPW of Pump A, say, which is expected to last 6 years, with the NPW of
Pump B, expected to last 12 years. In this example, the assumption would be that Pump A will
be replaced by another identical Pump A at the end of 6 years. This gives a common analysis
period of 12 years.
In situations like this, restructure the problem so there is a common analysis period. This is
easy when the different lives of the alternatives have a practical least common multiple. When
this is not the case, some assumptions must be made to select a suitable common analysis
period. Or, just don’t use the NPW method.
Internal Rate of Return (IRR) Method
Also known as the Return on Investment (ROI) method. It answers the question “If I make this
investment, will there be a sufficient return (i.e., interest) on the money invested?”
For any set of disbursements-receipts relationships, there is some rate of return that will
exactly reduce the worth of the investment to zero at the end of the time period. The computed
interest or profit rate, i *, which will fulfill this condition, is the internal rate of return.
To determine the ROI for an investment, derive the mathematical expression for the present
worth by bringing all the cash flows to the present. This expression will be in terms of the
appropriate functional notations as the interest rate is unknown. The interest rate, i *, that
reduces the expression to zero is found by trial and error (including interpolation), and uses the
discount factors for the appropriate number of years at different rates of interest.
Other things being equal, the preferred alternative is the one with the highest IRR.
As a rule, the IRR must be able to cover the sum of savings interest rate (if the principal is
deposited in a bank to earn interest) and business risk, to make the investment proposal
attractive.
CIE 210 PS Notes Sessions 9 & 10 – Basic Cost Concepts & Engg Econ 06/11/10 WCH 11
12. The IRR is the interest (profit) rate earned by all capital that is invested in the project each
year.
Need to Invest?
Sometimes when an unsatisfactory condition is under review and an investment in fixed asset
is proposed to correct this condition, no thought is given to possible methods of improving the
conditions without a substantial investment.
For example, new machinery may be proposed to reduce high labour costs on a certain
operation. However, work simplification methods based on motion study may provide an
alternative way to reduce these costs
Or, new equipment may be proposed to reduce product quality rejects. Yet, it could be possible
that the same result might be obtained through the use of statistical quality control techniques.
CIE 210 PS Notes Sessions 9 & 10 – Basic Cost Concepts & Engg Econ 06/11/10 WCH 12