Module 1.2_Cost, Design Economics and Break-Even analysis

Fixed Cost

Costs that are not affected by changes in activity level, remaining constant over a range of operations.

Variable Cost

Costs that vary in total with the quantity of output or activity level.

Incremental Cost

Additional cost or revenue resulting from increasing output of a system by one or more units.

Recurring Cost

Costs that are repetitive, occurring when producing similar goods or services.

Nonrecurring Cost

Costs that are non-repetitive, usually related to developing new capabilities.

Direct Cost

Costs that can be measured and allocated to a specific output or work activity.

Indirect Cost

Costs that are difficult to attribute to a specific output or work activity.

Standard Cost

Pre-established costs per unit of output developed from anticipated labor, materials, and overhead.

Cash Cost

Cost involving actual cash payment and resulting in a cash flow.

Book Cost

Cost that does not involve cash transactions, often representing the depreciation of assets.

Sunk Cost

Cost that has occurred in the past and is irrelevant for future cost estimations.

Opportunity Cost

Cost incurred by not using resources for the next best alternative.

Life-Cycle Cost

Summation of all costs related to a product during its lifespan.

Investment Cost

Capital required for activities in the acquisition phase.

Working Capital

Funds required for current assets needed for operational activities.

Operation and Maintenance Cost (O&M)

Recurring annual expenses associated with the operation phase.

Disposal Cost

Nonrecurring costs related to shutting down operations and disposing of assets.

Break-Even Point

The point where total revenue equals total costs.

Profit

The difference between total revenue and total cost.

Demand

The quantity of a product or service that is desired by buyers.

Total Revenue (TR)

The total income from sales calculated by price multiplied by demand.

Total Cost (CT)

The sum of fixed costs and variable costs associated with production.

Marginal Cost

The cost added by producing one additional unit of a product.

Price-dependent Demand

When the price of a product is influenced by the level of demand.

Life-Cycle Costing

An evaluation approach that considers all costs related to the lifespan of an asset.

Profit Maximization

The strategy of increasing revenue while minimizing costs.

Capacity

The maximum level of output that a company can sustain to make a product.