This document discusses tools for economic justification of projects, including cost estimating, economic measures of merit, and setting project priorities. It provides formulas for estimating various costs associated with a project such as materials, labor, utilities, maintenance, overhead, depreciation, taxes, and administrative costs. It also discusses economic measures used to analyze projects, including net present value, discounted payback period, and internal rate of return. An example is provided to illustrate how these tools and measures can be used to prioritize projects based on available funding.
Slides for the eLearning course Separation and purification processes in biorefineries (https://open-learn.xamk.fi) in IMPRESS project (https://www.spire2030.eu/impress).
Section: Mass transfer processes
Subject: 3.4 Economics and finance
This document discusses various types of engineering costs and methods for estimating costs. It describes fixed and variable, direct and indirect, marginal and average, sunk and opportunity costs. It also discusses recurring and non-recurring costs, incremental costs, cash and book costs, and life-cycle costs. The document then explains methods for estimating costs, including using per-unit models, work breakdown structure (WBS) models, and cost indices. It provides examples to illustrate key cost concepts.
The document discusses various topics related to engineering economics and cost analysis. It begins by defining economics according to prominent economists like Robbins and Marshall. It then covers microeconomics, macroeconomics, economic goals and the flow in an economy. The document defines engineering economics and discusses principles, analysis procedures, and scope. It also covers concepts like cost elements, types of costs, cost estimating models, inflation, break even analysis, and value engineering. Finally, it discusses time value of money and interest calculations.
This document contains details about a management information course, including its objectives, content breakdown, and schedule. The course aims to teach students how to establish costs for products/services, prepare budgets, identify performance measures, and analyze relevant data for decision making. The first lecture focuses on fundamentals of costing, defining key terms like cost objects, cost units, direct/indirect costs, and cost behavior patterns. It also explains how to classify costs for inventory valuation, profit measurement, planning, control, and decision making.
The presentation describes Elements of cost and classification, cost estimation approaches and method, break even analysis, steps and limitation with examples
This Presentation Is Created By Me Of My Idea and Thoughts About Economics In Software Engineering In This Presentation Includes Basic Fundamentals of Economics In Software Engineering, and Below Topics Covered In This Presentation.
--> Introduction Of Economics In Software Engineering
--> Fundamentals Economics In Software Engineering
--> Life Cycle Of Economics In Software Engineering
--> Risk and Uncertainty in Economics In Software Engineering
--> Analysis Method in Economics In Software Engineering
--> Practical Consideration
--> Conclusion
Firms transform factors of production like labor, capital, and land into goods. The production process can be analyzed in the short-run and long-run. In the short-run, some inputs are fixed while others are variable. A production function shows the relationship between inputs used and the quantity of output. Costs include fixed costs, variable costs, and total costs. Graphing costs shows U-shaped average cost curves and a marginal cost curve that intersects at the minimum points of the average cost curves.
Slides for the eLearning course Separation and purification processes in biorefineries (https://open-learn.xamk.fi) in IMPRESS project (https://www.spire2030.eu/impress).
Section: Mass transfer processes
Subject: 3.4 Economics and finance
This document discusses various types of engineering costs and methods for estimating costs. It describes fixed and variable, direct and indirect, marginal and average, sunk and opportunity costs. It also discusses recurring and non-recurring costs, incremental costs, cash and book costs, and life-cycle costs. The document then explains methods for estimating costs, including using per-unit models, work breakdown structure (WBS) models, and cost indices. It provides examples to illustrate key cost concepts.
The document discusses various topics related to engineering economics and cost analysis. It begins by defining economics according to prominent economists like Robbins and Marshall. It then covers microeconomics, macroeconomics, economic goals and the flow in an economy. The document defines engineering economics and discusses principles, analysis procedures, and scope. It also covers concepts like cost elements, types of costs, cost estimating models, inflation, break even analysis, and value engineering. Finally, it discusses time value of money and interest calculations.
This document contains details about a management information course, including its objectives, content breakdown, and schedule. The course aims to teach students how to establish costs for products/services, prepare budgets, identify performance measures, and analyze relevant data for decision making. The first lecture focuses on fundamentals of costing, defining key terms like cost objects, cost units, direct/indirect costs, and cost behavior patterns. It also explains how to classify costs for inventory valuation, profit measurement, planning, control, and decision making.
The presentation describes Elements of cost and classification, cost estimation approaches and method, break even analysis, steps and limitation with examples
This Presentation Is Created By Me Of My Idea and Thoughts About Economics In Software Engineering In This Presentation Includes Basic Fundamentals of Economics In Software Engineering, and Below Topics Covered In This Presentation.
--> Introduction Of Economics In Software Engineering
--> Fundamentals Economics In Software Engineering
--> Life Cycle Of Economics In Software Engineering
--> Risk and Uncertainty in Economics In Software Engineering
--> Analysis Method in Economics In Software Engineering
--> Practical Consideration
--> Conclusion
Firms transform factors of production like labor, capital, and land into goods. The production process can be analyzed in the short-run and long-run. In the short-run, some inputs are fixed while others are variable. A production function shows the relationship between inputs used and the quantity of output. Costs include fixed costs, variable costs, and total costs. Graphing costs shows U-shaped average cost curves and a marginal cost curve that intersects at the minimum points of the average cost curves.
This document is a presentation on cost accounting given by Rahat from the Creative Crew at Metropolitan University, Sylhet. It includes definitions and calculations for key cost accounting terms like maximum level, minimum level, reordering level, direct and indirect costs, job costing, and batch costing. It also discusses accounting tools like bin cards, stores ledgers, and purchase requisitions. The presentation acknowledges the teacher Mohammad Shahidul Haque and answers questions on cost accounting elements and classifications.
This document discusses cost measurement and different costing methods, including absorption costing and variable/direct costing. It provides examples to illustrate the calculation of product costs under absorption costing and variable costing. Absorption costing includes both variable and fixed manufacturing costs in product costs, while variable costing treats fixed costs as period costs not included in product costs. The document compares the two methods and discusses their treatment of inventory costs and reported profit.
Overhead refers to indirect costs that cannot be traced to a specific product or service. There are various types of overheads that must be classified. The major steps in overhead accounting are to collect overhead details, distribute overhead to cost centers, and reapportion service department costs to production departments. Common bases for apportioning overhead include direct allocation, direct labor hours, and direct wages. Methods of reapportionment include the direct redistribution and step methods. Absorbing overheads involves allocating overhead expenses to cost centers or cost units using absorption rates. Under or over absorption of overhead can occur depending on actual overhead costs versus absorbed costs.
Ss 03 CCP- AACE.org cost engineering management training- 2017 - dr. mousta...Moustafa Ismail Abu Dief
This document summarizes a lecture on activity-based cost management. It discusses how activity-based costing (ABC) can provide insights into indirect expenses by assigning costs to activities and tracing them to final cost objects. ABC expresses activities using verbs and links expenses to outputs. It also discusses how ABC can identify value-adding versus non-value-adding activities and be used for both local process improvement and enterprise-wide strategic decision-making. More advanced ABC systems integrate with other decision support systems for automated data collection and reporting.
This document discusses supply chain integration and dynamics. It provides examples of supply chain structures and flows of information and materials. Key points include:
- Effective coordination of supply chain processes through seamless information flow up and down the chain.
- The "bullwhip effect" where small changes in demand can be amplified as they move up the supply chain.
- Integrated supply chains can minimize disruptions through functional and organizational integration between firms, suppliers, and customers.
- Decision making tools like total cost analysis and performance matrices can help evaluate supply chain partners and configurations.
This document discusses cost allocation theory. It defines key terms like cost objects, common costs, and allocation bases. It explains that common costs are assigned to cost objects using an allocation base, like hours or sales dollars. The goals of cost allocation include providing information for decision making, external reporting, and controlling manager behavior. The best allocation bases closely match the related costs. Insulating and noninsulating allocation schemes both aim to motivate cost reduction.
The document discusses cost classification and cost sheets. It describes various bases for classifying costs, such as by nature, relation to cost centers, function, behavior, time, controllability, and normality. It also explains the components and advantages of a cost sheet, including determining total cost, profit/loss, and aiding in price fixation and budget preparation. Cost sheets classify costs to calculate prime cost, works cost, cost of production, cost of sales, and profit.
The document discusses traditional costing systems and activity-based costing (ABC) systems. It provides examples of activities in a manufacturing company and how overhead costs are allocated using ABC. Under ABC, costs are traced to activities and then to products using cost drivers. This provides a more accurate allocation of overhead costs compared to traditional systems that allocate overhead based only on direct labor or machine hours. The document includes an example of calculating activity cost driver rates and allocating overhead costs to different pen products using ABC for a manufacturing company.
This document discusses various methods for accounting for overhead costs in management accounting. It covers budgeting overhead rates, applying overhead to products using a budgeted rate, and accounting for under- or over-applied overhead. It also compares variable costing and absorption costing methods, including calculating income statements and production volume variances under each method. The key difference between the methods is how fixed manufacturing costs are treated in determining cost of goods sold and gross profit.
MG 6863 ENGG ECONOMICS UNIT IV REPLACEMENT AND MAITENANCE ANALYSIS Asha A
The document discusses various types of maintenance including corrective, scheduled, preventive, and predictive maintenance. It defines each type and provides examples. Preventive maintenance aims to detect and prevent failures through systematic inspection and minor repairs. The objectives are to keep equipment available and maintain production efficiency. Predictive maintenance uses sensors to predict issues before failure. Replacement analysis considers when to replace assets based on factors like deterioration, obsolescence, and cost. Various replacement problems are examined, including economic life and choosing between existing and new assets.
Eco 10 ,B COM, IGNOU-Elements of costing
ALL SO USEFUL FOR CA CMA, CS ,B COM, BBA. MBA
IGNOU BCOM ECO-10 (Elements of Costing) Study Material –Dear Learners, The full downloadable free study materials of ECO-10 (Elements of Costing) are listed below to facilitate your studies for securing good marks in upcoming term end examinations. Though, your performance in examination will mostly depend on your efforts only. Even though, I can assure you that the following study materials will proof to be cabalistic in your efforts.
Block- 1 Basic Concepts
Unit-1 Nature and Scope
Unit-2 Concept of Cost and Its Ascertainment
Block- 2 Materials and Labour
Unit-3 Procurement, Storage and Issue
Unit-4 Inventory Control
Unit-5 Pricing the Issue of Materials
Unit-6 Labour
Block- 3 Overheads
Unit-7 Classification and Distribution of Overheads
Unit-8 Absorption of Factory Overheads
Unit-9 Treatment of Other Overheads
Block-4 Methods of Costing
Unit-10 Unit Costing
Unit-11 Reconciliation of Cost Financial Accounts
Unit-12 Job and Contract Costing
Unit-13 Process Costing
1. Cost Accountancy
2. Cost Accounting
2.1 Definition of Cost Accounting2.2 Objectives of Cost Accounting2.3 Importance of Cost Accounting2.4 Advantages of Cost Accounting2.5 Limitations of Cost Accounting2.6 Reports Generated by Cost Accounting Department
3. Installation of Cost Accounting System
3.1 Basic Considerations3.2 Steps in Introduction3.3 Essentials of a Good Cost Accounting System 3.4 Difficulties in Introduction
This document provides an introduction to cost and management accounting. It defines key terms like cost, expense, cost accounting, management accounting, and overhead. It explains the objectives and applications of cost and management accounting. The different types of overhead like works overhead, administration overhead, and selling overhead are described. The document also covers classifications of costs by nature, behavior, and for management decision making. Elements of cost like direct and indirect materials, direct and indirect labor, and direct and indirect expenses are defined. Finally, the cost sheet and its format are explained as a tool for analyzing product costs.
This document discusses cost allocation methods and frameworks. It provides 4 types of cost objectives: service departments, producing departments, products/services, and customers. It describes direct and indirect costs and how they are allocated using cost drivers. It also discusses the direct and step-down methods for allocating service department costs and reciprocal services. Finally, it covers allocating costs associated with customers to determine customer profitability.
The document discusses job-order costing, including:
1. Job-order costing is used when different products are produced to customer orders and the unique nature of each job requires tracing costs.
2. Manufacturing overhead is allocated to jobs using a predetermined overhead rate based on an allocation base like direct labor hours.
3. Underapplied or overapplied overhead can occur if actual overhead differs from the amount applied using the predetermined rate.
This document discusses overhead costs and their accounting treatment. It defines overheads as indirect costs that cannot be directly attributed to a specific cost object. The document outlines the key steps in overhead accounting: classification of overheads, codification and collection, allocation and apportionment to cost centers, and absorption into product costs. It provides examples of different bases for classifying, allocating, and apportioning overheads. The document also discusses reapportioning service department costs to production departments through various secondary distribution methods like repeated distribution and trial and error.
This document discusses various cost concepts and classifications. It defines cost, different elements of cost like direct material, direct labor, overheads. It classifies costs as manufacturing vs non-manufacturing costs, and according to behavior as variable, fixed or mixed costs. The document also discusses cost segregation methods and classification of costs for decision making like relevant vs irrelevant costs.
This document provides information on activity-based costing (ABC), including:
- The key concepts of ABC including cost objects, activities, cost pools, and cost drivers.
- The steps involved in the ABC process, such as identifying activities, calculating activity costs, determining cost drivers, and assigning costs to products.
- An example problem demonstrating the calculation of product costs per unit using both traditional costing and ABC.
- The benefits of ABC including a focus on cost behaviors and value-added activities to provide better cost information for pricing and profitability decisions.
Direct and indirect costs must be estimated for engineering projects. Common direct cost estimation techniques include the unit method, cost indexes, and cost-estimating relationships. Indirect costs can comprise 25-50% of total costs and are traditionally allocated using predetermined rates. Activity-based costing is a more accurate method that uses cost drivers to allocate indirect costs to cost centers. Ethical practices, like avoiding deception, are important for creating unbiased cost estimates.
Direct and indirect costs must be estimated for engineering projects. Common direct cost estimation techniques include the unit method, cost indexes, and cost-estimating relationships. Indirect costs can comprise 25-50% of total costs and are traditionally allocated using predetermined rates. Activity-based costing is a more accurate allocation method that uses cost drivers. Ethical practices like avoiding deception are important for quality cost estimation.
This document is a presentation on cost accounting given by Rahat from the Creative Crew at Metropolitan University, Sylhet. It includes definitions and calculations for key cost accounting terms like maximum level, minimum level, reordering level, direct and indirect costs, job costing, and batch costing. It also discusses accounting tools like bin cards, stores ledgers, and purchase requisitions. The presentation acknowledges the teacher Mohammad Shahidul Haque and answers questions on cost accounting elements and classifications.
This document discusses cost measurement and different costing methods, including absorption costing and variable/direct costing. It provides examples to illustrate the calculation of product costs under absorption costing and variable costing. Absorption costing includes both variable and fixed manufacturing costs in product costs, while variable costing treats fixed costs as period costs not included in product costs. The document compares the two methods and discusses their treatment of inventory costs and reported profit.
Overhead refers to indirect costs that cannot be traced to a specific product or service. There are various types of overheads that must be classified. The major steps in overhead accounting are to collect overhead details, distribute overhead to cost centers, and reapportion service department costs to production departments. Common bases for apportioning overhead include direct allocation, direct labor hours, and direct wages. Methods of reapportionment include the direct redistribution and step methods. Absorbing overheads involves allocating overhead expenses to cost centers or cost units using absorption rates. Under or over absorption of overhead can occur depending on actual overhead costs versus absorbed costs.
Ss 03 CCP- AACE.org cost engineering management training- 2017 - dr. mousta...Moustafa Ismail Abu Dief
This document summarizes a lecture on activity-based cost management. It discusses how activity-based costing (ABC) can provide insights into indirect expenses by assigning costs to activities and tracing them to final cost objects. ABC expresses activities using verbs and links expenses to outputs. It also discusses how ABC can identify value-adding versus non-value-adding activities and be used for both local process improvement and enterprise-wide strategic decision-making. More advanced ABC systems integrate with other decision support systems for automated data collection and reporting.
This document discusses supply chain integration and dynamics. It provides examples of supply chain structures and flows of information and materials. Key points include:
- Effective coordination of supply chain processes through seamless information flow up and down the chain.
- The "bullwhip effect" where small changes in demand can be amplified as they move up the supply chain.
- Integrated supply chains can minimize disruptions through functional and organizational integration between firms, suppliers, and customers.
- Decision making tools like total cost analysis and performance matrices can help evaluate supply chain partners and configurations.
This document discusses cost allocation theory. It defines key terms like cost objects, common costs, and allocation bases. It explains that common costs are assigned to cost objects using an allocation base, like hours or sales dollars. The goals of cost allocation include providing information for decision making, external reporting, and controlling manager behavior. The best allocation bases closely match the related costs. Insulating and noninsulating allocation schemes both aim to motivate cost reduction.
The document discusses cost classification and cost sheets. It describes various bases for classifying costs, such as by nature, relation to cost centers, function, behavior, time, controllability, and normality. It also explains the components and advantages of a cost sheet, including determining total cost, profit/loss, and aiding in price fixation and budget preparation. Cost sheets classify costs to calculate prime cost, works cost, cost of production, cost of sales, and profit.
The document discusses traditional costing systems and activity-based costing (ABC) systems. It provides examples of activities in a manufacturing company and how overhead costs are allocated using ABC. Under ABC, costs are traced to activities and then to products using cost drivers. This provides a more accurate allocation of overhead costs compared to traditional systems that allocate overhead based only on direct labor or machine hours. The document includes an example of calculating activity cost driver rates and allocating overhead costs to different pen products using ABC for a manufacturing company.
This document discusses various methods for accounting for overhead costs in management accounting. It covers budgeting overhead rates, applying overhead to products using a budgeted rate, and accounting for under- or over-applied overhead. It also compares variable costing and absorption costing methods, including calculating income statements and production volume variances under each method. The key difference between the methods is how fixed manufacturing costs are treated in determining cost of goods sold and gross profit.
MG 6863 ENGG ECONOMICS UNIT IV REPLACEMENT AND MAITENANCE ANALYSIS Asha A
The document discusses various types of maintenance including corrective, scheduled, preventive, and predictive maintenance. It defines each type and provides examples. Preventive maintenance aims to detect and prevent failures through systematic inspection and minor repairs. The objectives are to keep equipment available and maintain production efficiency. Predictive maintenance uses sensors to predict issues before failure. Replacement analysis considers when to replace assets based on factors like deterioration, obsolescence, and cost. Various replacement problems are examined, including economic life and choosing between existing and new assets.
Eco 10 ,B COM, IGNOU-Elements of costing
ALL SO USEFUL FOR CA CMA, CS ,B COM, BBA. MBA
IGNOU BCOM ECO-10 (Elements of Costing) Study Material –Dear Learners, The full downloadable free study materials of ECO-10 (Elements of Costing) are listed below to facilitate your studies for securing good marks in upcoming term end examinations. Though, your performance in examination will mostly depend on your efforts only. Even though, I can assure you that the following study materials will proof to be cabalistic in your efforts.
Block- 1 Basic Concepts
Unit-1 Nature and Scope
Unit-2 Concept of Cost and Its Ascertainment
Block- 2 Materials and Labour
Unit-3 Procurement, Storage and Issue
Unit-4 Inventory Control
Unit-5 Pricing the Issue of Materials
Unit-6 Labour
Block- 3 Overheads
Unit-7 Classification and Distribution of Overheads
Unit-8 Absorption of Factory Overheads
Unit-9 Treatment of Other Overheads
Block-4 Methods of Costing
Unit-10 Unit Costing
Unit-11 Reconciliation of Cost Financial Accounts
Unit-12 Job and Contract Costing
Unit-13 Process Costing
1. Cost Accountancy
2. Cost Accounting
2.1 Definition of Cost Accounting2.2 Objectives of Cost Accounting2.3 Importance of Cost Accounting2.4 Advantages of Cost Accounting2.5 Limitations of Cost Accounting2.6 Reports Generated by Cost Accounting Department
3. Installation of Cost Accounting System
3.1 Basic Considerations3.2 Steps in Introduction3.3 Essentials of a Good Cost Accounting System 3.4 Difficulties in Introduction
This document provides an introduction to cost and management accounting. It defines key terms like cost, expense, cost accounting, management accounting, and overhead. It explains the objectives and applications of cost and management accounting. The different types of overhead like works overhead, administration overhead, and selling overhead are described. The document also covers classifications of costs by nature, behavior, and for management decision making. Elements of cost like direct and indirect materials, direct and indirect labor, and direct and indirect expenses are defined. Finally, the cost sheet and its format are explained as a tool for analyzing product costs.
This document discusses cost allocation methods and frameworks. It provides 4 types of cost objectives: service departments, producing departments, products/services, and customers. It describes direct and indirect costs and how they are allocated using cost drivers. It also discusses the direct and step-down methods for allocating service department costs and reciprocal services. Finally, it covers allocating costs associated with customers to determine customer profitability.
The document discusses job-order costing, including:
1. Job-order costing is used when different products are produced to customer orders and the unique nature of each job requires tracing costs.
2. Manufacturing overhead is allocated to jobs using a predetermined overhead rate based on an allocation base like direct labor hours.
3. Underapplied or overapplied overhead can occur if actual overhead differs from the amount applied using the predetermined rate.
This document discusses overhead costs and their accounting treatment. It defines overheads as indirect costs that cannot be directly attributed to a specific cost object. The document outlines the key steps in overhead accounting: classification of overheads, codification and collection, allocation and apportionment to cost centers, and absorption into product costs. It provides examples of different bases for classifying, allocating, and apportioning overheads. The document also discusses reapportioning service department costs to production departments through various secondary distribution methods like repeated distribution and trial and error.
This document discusses various cost concepts and classifications. It defines cost, different elements of cost like direct material, direct labor, overheads. It classifies costs as manufacturing vs non-manufacturing costs, and according to behavior as variable, fixed or mixed costs. The document also discusses cost segregation methods and classification of costs for decision making like relevant vs irrelevant costs.
This document provides information on activity-based costing (ABC), including:
- The key concepts of ABC including cost objects, activities, cost pools, and cost drivers.
- The steps involved in the ABC process, such as identifying activities, calculating activity costs, determining cost drivers, and assigning costs to products.
- An example problem demonstrating the calculation of product costs per unit using both traditional costing and ABC.
- The benefits of ABC including a focus on cost behaviors and value-added activities to provide better cost information for pricing and profitability decisions.
Direct and indirect costs must be estimated for engineering projects. Common direct cost estimation techniques include the unit method, cost indexes, and cost-estimating relationships. Indirect costs can comprise 25-50% of total costs and are traditionally allocated using predetermined rates. Activity-based costing is a more accurate method that uses cost drivers to allocate indirect costs to cost centers. Ethical practices, like avoiding deception, are important for creating unbiased cost estimates.
Direct and indirect costs must be estimated for engineering projects. Common direct cost estimation techniques include the unit method, cost indexes, and cost-estimating relationships. Indirect costs can comprise 25-50% of total costs and are traditionally allocated using predetermined rates. Activity-based costing is a more accurate allocation method that uses cost drivers. Ethical practices like avoiding deception are important for quality cost estimation.
The document discusses the importance of project cost management. It notes that projects historically have poor track records for meeting cost goals, with average cost overruns found in various CHAOS studies from 1995 to 2003. Proper project cost management, including processes like resource planning, cost estimating, cost budgeting and cost control, can help reduce cost overruns. The basic principles of cost management, such as distinguishing different types of costs and using techniques like activity-based costing and reserves, are also covered.
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.
This document provides an overview of engineering economics and its application in process engineering. It discusses key concepts like the time value of money, methods for quantifying project profitability like net present value, payback period, return on investment, and internal rate of return. It also covers typical accounting tools used like income statements and cash flow statements. The document explains how to estimate capital costs using methods like the turnover ratio and Lang's factor as well as operating costs considering factors like labor, materials, and utilities. It emphasizes the need to balance accuracy and cost when developing cost estimates.
Engineering economics Slides for Postgraduatesssuser50050d1
Engineering management involves applying engineering knowledge and judgment to develop solutions that utilize natural resources for the benefit of humanity. There are physical and economic environments to consider. The engineering process includes determining objectives and strategies, proposing solutions, evaluating proposals, and assisting with decision making. Engineering economy deals with analyzing the costs and benefits of projects over time. It is used to evaluate which projects are worthwhile and how projects should be designed and prioritized. Manufacturing costs include direct materials, direct labor, and manufacturing overhead. Prime costs refer to direct materials and labor, while factory costs also include factory overheads.
Cost management involves planning and controlling a project's budget to help ensure it is completed within approved funding. It includes processes like resource planning, cost estimating, cost budgeting, and cost control. Resource planning determines what resources like people, equipment, and materials are needed. Cost estimating develops cost approximations for project activities. Cost budgeting allocates overall estimates to specific work items to establish a cost baseline. Cost control monitors performance against the baseline and manages any changes to keep costs on track. Maintaining and improving productivity is important for cost management and completing projects successfully within budget.
* Factory Overhead for the budget period = Rs. 60,000
* Direct Material cost for the budget period = Rs. 2,40,000
* Percentage of Direct Material cost = (Factory Overhead/Direct Material cost) x 100
= (60,000/2,40,000) x 100 = 25%
Therefore, the percentage of direct material cost method will allocate overheads at 25% of the direct material cost of each production order or job.
Cost Indices, change in cost over time. Cost indexes are maintained in areas such as construction, chemical and mechanical industries. Lang’s method , Hand method.
The document discusses definitions and concepts of productivity. It provides several definitions of productivity, including classical definitions that measure outputs relative to inputs needed. Productivity can be measured in various ways depending on the sector, such as hours to produce goods in a factory or revenue per employee in services. Higher productivity is important for economic growth and competitive advantage at the individual, organizational and national levels.
This document provides an overview of key concepts related to costs, including opportunity costs, sunk costs, fixed costs, variable costs, marginal costs, average costs, and direct vs. indirect costs. It discusses cost-volume-profit analysis and the calculation of breakeven point. Examples are provided to illustrate opportunity cost decisions and the differences between various cost types. The document also summarizes accounting rules regarding product costs, period costs, and the treatment of expenses.
This document discusses project cost management principles and processes. It explains that IT projects often experience cost overruns and provides examples. The key processes for managing costs are estimating costs, determining budgets, and controlling costs. Estimating involves developing cost approximations, while determining budgets allocates the estimate to work items to establish a baseline. Controlling costs involves monitoring performance against the baseline and approving changes. Earned value management is presented as a technique to integrate scope, time and cost data to track project performance.
This document provides an overview of project evaluation and portfolio management. It discusses evaluating individual projects through a business case document covering introduction, proposed project details, market estimates, organizational impacts, benefits, costs, risks and a management plan. Project portfolio management aims to prioritize allocation of resources across all of an organization's projects by categorizing them, tracking performance, and balancing high-benefit low-risk and high-profit high-risk projects. Key evaluation techniques discussed are cost-benefit analysis, payback period, return on investment, discount factors, and net present value analysis which discounts future cash flows to evaluate project profitability.
SE 307-CHAPTER_9_PROJECT_CASH_FLOW_ANALYSIS.pptAishaKhan527933
This document discusses project cash flow analysis for a manufacturing company. It provides definitions for different types of costs including direct materials, direct labor, manufacturing overhead, non-manufacturing overhead, marketing, and administrative costs. It also defines fixed, variable, and mixed costs. An example is provided to calculate average unit cost. The document then provides an example cash flow analysis for a project to install a new computer control system over 5 years. It shows the income statement, cash flow statement, and calculates that the project has a 22.55% internal rate of return, making it justified above the 15% minimum acceptable rate of return.
This document provides an overview of microeconomics concepts related to production and costs. It discusses the factors of production (land, labor, capital, entrepreneurship), the production process, and production curves including total physical product, average physical product, and marginal physical product. It also covers the law of diminishing returns and the three stages of production. The document then discusses theory of costs, including fixed and variable costs, and how to compute total, average, and marginal costs. Finally, it covers price and output determination under perfect competition, including demand and supply, the laws of demand and elasticity, and how price is determined in the market period.
Cost-Estimation-Techniques unit 2.pptxSudipBalLama
The document discusses various cost estimation techniques that can be used for engineering economic analyses and capital investments. It describes top-down and bottom-up approaches, with top-down using historical data and bottom-up breaking projects into smaller work elements. An integrated approach uses a work breakdown structure, cost/revenue structure, and estimating models. Specific techniques discussed include indexes, unit costs, factors, parametric models, and learning curves. Cost estimation is important for setting prices, determining profits, and justifying investments.
The document provides an overview of cost accounting concepts including the nature, scope, objectives, and elements of cost accounting. It defines key terms like cost, expense, loss and discusses the classification of costs based on identifiability, activity, control, time, and normality. It also covers cost accounting concepts, methods of costing including job, batch and process costing, and the advantages and limitations of cost accounting.
Similar to Economic justification of npd project and financial tools (20)
This document provides an overview of intellectual property, including its definition and main categories. Intellectual property is divided into industrial property (patents, trademarks, industrial designs, geographical indications, trade secrets) and copyright. It describes key aspects of each type of intellectual property like what they protect, who can own them, typical length of protection, examples of famous patents and trademarks. The purpose of intellectual property is to promote innovation by granting exclusive rights to creators and owners to benefit from their work.
1) The document discusses various aspects of knowledge-based marketing such as segmentation, positioning, promotion, product development, pricing, and customer relationship management.
2) It emphasizes the importance of understanding customer needs and behaviors through market research and data analysis to inform marketing strategies and decisions.
3) New technologies like data mining, customer databases, and digital tools allow companies to gain deeper insights into customers and customize their marketing accordingly.
This document summarizes strategies for debiasing human decision making. It discusses motivational, cognitive, and technological strategies for overcoming biases. Some key points covered include recognizing biases through feedback, replacing inferior intuitive decision strategies with better rules-based strategies through training, using technology like linear models and statistical analysis to improve upon expert judgments, and promoting the adoption of debiasing techniques through social norms and management programs.
The document presents ideas for creating an environmentally friendly home from a presentation given by Omid Aminzadeh Gohari at Sharif University of Technology's Electrical Engineering Department. Some key ideas include installing solar hot water heating, replacing standard light bulbs with compact fluorescents, improving home insulation, using natural lighting and ventilation, installing low flow showerheads, and living by the principles of reduce, reuse, and recycle. The presentation provides various tips for building an eco-friendly home through products, materials, and behaviors that minimize environmental impact.
This document outlines a presentation on using information theory to understand portfolio selection strategies in the stock market. The presentation covers: why the stock market is important both financially and as an application of information theory; Chen's approach to modeling the information content in a market; Cover and Thomas's approach to modeling the stock market as a vector of stock prices; key concepts like wealth-relative and growth rate of wealth; how side information can provide an upper bound on increased growth rate; and concludes by briefly discussing the connections between information theory and the stock market.
Heuristics are simple rules or mental shortcuts that allow humans to make decisions quickly and with limited information. The document discusses several types of heuristics including: the gaze heuristic, recognition heuristic, social heuristics like "do what the majority do", and heuristics based on reasons like take the best and tallying. It also covers cognitive biases like hindsight bias. Overall, the document examines how heuristics demonstrate bounded rationality and how humans use fast and frugal mental shortcuts to make decisions in an efficient manner.
The document discusses procurement management and the various cycles and strategies involved. It describes the requirement, requisition, solicitation, award, and contract administration cycles. It also covers make-or-buy analysis, contract types, risk allocation, and contract changes and termination. The goal of procurement management is to purchase necessary goods and services while managing relationships and contracts.
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Economic justification of npd project and financial tools
1. Under supervision of Dr. Sadeghi
By:
Ali Bayani
Ali Heydari
Elnaz mahmoodi
Kooshan Gholami
Spring 2011
2. Financial Tools
Three tools for Economic Justification:
Cost Estimating
Economic Measures
Of Merit
Setting Project Priorities
3. Financial Tools
Cost Estimating:
Materials
Labor
Utilities
Maintenance
Plant overheads
Depreciation, taxes, and insurance
General and administrative
4. Financial Tools
Materials:
The equation for estimating material is material price times
quantity produced (units) divided by yield:
Price * (units/yield)
5. Financial Tools
Case Study: Total Materials Used
Improvement Probe
Probe sells 600$
Calculate
material costs
6. Financial Tools
Case Study: Total Materials Used
So they set a target for improvement Probe’s materials
7. Financial Tools
Labor:
1) Total number of people directly working on the
product
2) Average wage rate
8. Financial Tools
Labor cost:
Vacation factor: 1.11
(Hours per year – vacation/holiday = Total hours worked)
Relief factor = 1.23
Benefits factor = 1.3
Supervision factor = 1.3
9. Financial Tools
Annual labors cost:
Number of operation * $ wages rate *
2080*(1.11*1.23*1.3*1.3)
10. Financial Tools
Case Study: Estimating Labor to
Produce Scanning Instruments
Analyze two suppliers
Calculate the labor cost
11. Financial Tools
Case Study: Estimating Labor to Produce Scanning Instruments
The labor costs for the scanning machines were considerable.
Of its $5,400 price tag, Supplier A’s labor costs were $2,184
per unit ($436,800 divided by 200 instruments).
Supplier B was indeed more automated so Mark was a little
puzzled at this point as to why its price was $5,150 when its
labor costs were only $1,613 per unit ($322,560 divided by
200 instruments).
Because of his efforts, he was able to secure a quote
for the 200 instruments from Supplier B at a cost of
$4,650.
12. Financial Tools
Utilities:
Include all the power associated with running the equipment
used to produced the product.
Annual utilities costs
are 2 percent of
investment
13. Financial Tools
Utilities:
We must estimate not only what it would cost to buy the equipment new, but
multiply it by three to include installation, project management, and facilities
associated with getting the equipment ready to run.
Utilities = Total investment (TI) × .02
14. Financial Tools
Maintenance:
Maintenance includes both labor and materials to keep the process
that is making the product or service, such as a mainframe computer,
maintained and producing in an efficient manner. The estimate of
annual maintenance cost is calculated at 6 percent of the total
investment.
Maintenance = .06 × total investment
15. Financial Tools
Plant Overheads:
General plant burden
Overtime
Plant administration (management and staff)
Employee relations
Medical
Fire and plant protection
Internal transportation (shipping and receiving)
Carrying and acquisition costs
Communications
Computers and telephone systems
Engineering assistance to operations
Grounds upkeep
Cafeteria
16. Financial Tools
Plant Overheads:
The problem with assigning or allocating overhead costs to a
product or service when there is more than one product or service
produced at a given location is defining the costs to be distributed
correctly. A good formula for estimating for overheads is .75 times
labor:
Overhead = .75 × labor
17. Financial Tools
Depreciation, Taxes, and Insurance:
Depreciation is one of the most misunderstood concepts associated with
cost sheet and cash flow analysis. Depreciation is an accounting element, a
noncash cost in total costs. Basically it is an investment incentive that the
government gives to corporations to encourage them to continue to invest.
Investment depreciation = 10% × total capital investment
18. Financial Tools
Depreciation, Taxes, and Insurance:
To this calculation add property taxes and insurance on the facility at
1 percent and the final equation will be:
Depreciation, taxes, and insurance =
11% × total investment
19. Financial Tools
General and Administrative Costs:
Selling expenses (personal selling expenses such as travel, salaries,
commissions, sales office rental, service, advertising, promotions, and
other marketing functions)
Executive compensation
Staff departments
Legal
Finance
Purchasing
20. Financial Tools
General and Administrative Costs:
Accounting
Central engineering
Office space
Insurance
Property taxes
Clerical
General and administrative expenses =
15% × total expenses
21. Economic Measures of Merit
• net present value (NPV)
• discounted payback period (DPP)
• Internal rate of return (IRR)
23. Performing a Cash Flow Analysis
• Step 1: Estimate the cash flow streams produced by the
project for 10 years.
• Step 2: Discount the streams by the cost of capital, so that all
streams are in today’s dollars.
• Step 3: Cumulate the discounted cash flow streams and plot.
24. Step 1: Estimate the Cash Flow
Streams.
Revenue
-cash expenses
-depreciation
=Before Tax Operating Income
- taxes
= Net Income
+ depreciation
- capital investment
= Year-End Cash Flow
26. Step 2: Discount the Streams by the Cost of Capital
• Next year:
27.
28. Step 2: Discount the Streams by the Cost of Capital
• Weighted Average cost of capital
Equity 15% × 2/3 = 10%
Debt 7% × 1/3 = 2%
Weighted average cost of capital = 12%
34. LIFE CYCLE ECONOMIC
• A quest for a comprehensive life cycle economic model has been
launched
• Classical manufacturing cost models, cost and management
accounting models, and microeconomic models are not adequate
• A comprehensive life cycle economic model is needed for
evaluation of the costs of 'doing' and 'not doing' the right things
to make products and processes environmentally safe.
35. LIFE CYCLE ECONOMIC
• The pace of product and process innovation in the intensely
competitive world market is accelerating
• Everyone has realized that bringing products rapidly to
market by listening to the voice of the customer
• by deploying concurrent (or simultaneous) engineering can
be accomplished only if all issues including economics are
considered up front before the first production run is made
36. CLASSICAL COST MODELS
Taylor's Cost Model
• Metal cutting economics began with the introduction of the now
classical Taylor time and cost models:
Cutting time per cut, tt = (ts + tc + td) = ts + Ic/V + (lc/VT)td (1)
Cost per cut, cc = ts Cr+ lc Cr/V+ (lc/VT)td Cr + (Ic/VT)Y (2)
Taylor tool life equation: logT = a constant - m 1ogV (3)
• By differentiating equations (1 ) and (2) with respect to V and
substituting the value of T from equation (3), Taylor obtained
optimum speeds for minimum cutting time and minimum cost
37. CLASSICAL COST MODELS
Traditional Accounting cost model
• who introduced 'Scientific Management' that the efficiency and
utilization of labor, material and equipment began to be measured
against 'one best way of doing work’:
Total Cost= Fixed Cost + Variable Cost
Fixed Cost=Overhead; Variable Cost=Material Cost + Labor Cost
Microeconomics of Firm
• The classical microeconomic concepts deal with the theory of firm in
pursuit of maximizing its profits and the theory of consumer behavior
during maximization of satisfaction
• Although the classical microeconomic theory provides a much needed
firm foundation, cost models have not resulted from the theory because
it is difficult to establish a production function in practice.
38. RECENT DEVELOPMENTS
Macro- and Micro- economic Models
• The Taylor tool life relationship and its subsequent
refinements mentioned above treated speed or feed or
depth of cut one variable at a time during the
determination of the time and cost optima.
• variables simultaneously leading to a truer optima for
machining tinie and cost; this culminated in the form of
cutting Rate-Tool Life-Functions (R-T-F) which describe
the basic trade-off between tool life and cutting rate and
consequently, machining time and cost.
39. Economic Models for New Process
Development
• Traditionally, the economics of new process development
is investigated only after the technological feasibility of
the process has been established and in most cases.
• The introduction of the conditions for economic
feasibility of a process provided a measure of how much
improvement is necessary and sufficient to justify
investment in the new process and the desirable working
regions where the process should prove economically
feasible, while the technological feasibility is being
established.
40. The necessary condition of economic
feasibility
• states that the cost savings and the value of time
savings by switching to the new process should
be greater than zero.
Δ cc+ Δ tc(oc) > 0
where tc = [(Vr) + (v+va)/R + (v/RT)td
cc = [(l/r) + (v+va)/R + (v/RT)td]Cr + (v/RT)Y
Δ tC=tC-td ; Δ ==cc-cd
tc=time per cut (oc)=opponunity cost (money/hour)
cc=cost per cut (money/cut) l=rapid traverse distance Y=tool cost per usage (money/usage); Cs
V=cutting speed (distance/time); v D=depth of cut (AD=Axial; RD=Radial); a. R=cutting rate (volume/time); CIRP equi., 2
td=tool indedchange time (time); Is..
41. The necessary condition of economic
feasibility
• The time saved at a processing unit can be utilized for processing additional parts
of the same kind or of a different kind, and hence, the opportunity cost (oc) of
time savings is recognize by valuing these savings at the rate it costs to farm out
work done by the machine.
• The above equations apply to the individual cut or a sequence of cuts within a
single setup on a machine tool, and, hence, these equations are called micro-economic
models.
42. The necessary condition of economic
feasibility
• Since a corporation exists in a competitive environment, the
frame work for a life cycle economic model must start from the
competitive strategy that a corporation must employ.
• Often employed successful strategy emphasizes capturing a
desired portion of the market share by the timely introduction
of a product with features and quality desired by the potential
users at a competitive price.
43. COST AND SHARE
• A target cost is determined by subtracting the desired profit
from the competitive price.
• By concurrently designing the products, processes, and
systems that can be continually improved, the actual cost is
brought closer and closer to the target cost.
• Many Japanese companies are known to sacrifice initial
profitability to gain the desired portion of the market share
and subsequently harvest profits as volume increases with the
increase in market share.
44. RISK AND OPPORTUNITY COST
• On the other hand, the actual cost of the product must
include not only the cost of materials, labor, consumables,
and all support functions, but also, the potential penalty costs
resulting from the environmental risks while the product is
being manufactured, stored, in use, disposed or recycled.
• There are also potential opportunity costs, which allow
advantageous positions to be secured by timely competitive
actions, including environmental and ecological
responsiveness, which must be recognized.
45. LIFE CYCLE ECONOMIC MODEL
• Therefore, the life cycle economic model must take the
following form:
(Actual Costs + Penalty Costs - Opportunity Costs) ≥ Target Cost
• Implicit in the costs is the question of timing. Timing can be
deployed only if the strategies are correctly formulated, the
necessary resources deployed, and the logistics executed so
as to achieve competitive introduction of the product:
(Actual Time-to-Market + Penalty Lags - Opportunity Leads) ≥ Target Timing
46. HINTS
• It is well known that over 80% of the costs of a
product are committed before a first production run
is made.
• The opportunities for influencing the costs are few
once the production begins.
• The more successful the concurrent engineering
process is the larger the portion of costs that will be
committed prior to the production run.
51. Framework for the financial justification of AMT
Level Ι
DCF analysis with refinements NPV=V1
Level ΙΙ
Value of flexibilities mathematical
programming models PV=V2
Level ΙΙΙ
Value of time series linkages learning
curve models PV=V3
Level ΙV
Residual strategic benefits qualitative
analysis
V1≥0
Gap G1=V1
V2≥G2
Gap G2=G1-V2
V3≥G2
Gap G3=G2-V3
Benefits <G3 Benefits ≥G3
Economically not OK Economically justified
52. Level 1
Analyze the easily quantifiable costs and costs using the
traditional discounted cash flow(DCF) models.
Examine the limitations of the traditional DCF analysis and
discuss some refinements.
53. Mechanics of the DCF analysis
Assumption of the status quo of the current cash flows
Terminal Value of the project
Treatment of inflation
54. Level 2
a stochastic mathematical programming model to quantify the
strategic benefits such as flexibility and quality
Analysis at Level2 becomes necessary if the Level1 analysis
results in a negative NPV.
55. Level 3
Quantify the benefits of the time series linkages between the
project currently being justified and a related future project
using a learning curve model
56. Level 4
A qualitative assessment of the benefits which were not
included in the evaluation at the first three levels.