Rizal Technological University College of Engineering, Architecture, and Technology Homework #1 Engineering Economics (EECO) Submitted by: Sheryl M. Lim Submitted to: Mr. Jerome Bugahon Date: August 31, 2022 Define the following financial terms 1. Fixed Cost – it refers to a cost that does not change with an increase or decrease in the number of goods or services produced or sold. Fixed costs are expenses that have to be paid by a company, independent of any specific business activities. This means fixed costs are generally indirect, in that they don't apply to a company's production of any goods or services. 2. Variable Cost- is a corporate expense that changes in proportion to how much a company produces or sells. Variable costs increase or decrease depending on a company's production or sales volume. 3. Incremental Cost- it is the additional cost incurred by a company if it produces one extra unit of output. The additional cost comprises relevant costs that only change in line with the decision to produce extra units. 4. Recurring Cost- a cost that occurs repeatedly during the life of an asset, such as for periodic cleaning, guard service, or preventive maintenance. Such costs are most closely associated with facilities operations. 5. Non-recurring Cost- is a cost that company incurs irregularly. Sometimes, a business may experience an emergency cost or need to purchase new equipment. These are nonrecurring expenses that the company still includes on its balance sheet. 6. Direct Cost- is a price that can be directly tied to the production of specific goods or services. A direct cost can be traced to the cost object, which can be a service, product, or department. 7. Indirect Cost- is any cost not directly identified with a single, final cost objective, but identified with two or more final cost objectives or an intermediate cost objective. Indirect costs include costs which are frequently referred to as overhead expenses (for example, rent and utilities) and general and administrative expenses 8. Overhead Cost- refers to the ongoing business expenses not directly attributed to creating a product or service. It is important for budgeting purposes but also for determining how much a company must charge for its products or services to make a profit. 9. Standard Cost- is described as a predetermined cost, an estimated future cost, an expected cost, a budgeted unit cost, a forecast cost, or as the "should be" cost. Standard costs are often an integral part of a manufacturer's annual profit plan and operating budgets. 10. Cash Cost- is a term used in cash basis accounting that refers to the recognition of expenses as they are paid in cash. Cash costs are recognized in the general ledger at the point when cash (or an alternative form of payment) exchanges hands. 11. Book Cost- refers to those expenses which do not involve actual cash payments, but rather the provisions are made in the books of accounts to include them in the profit and loss accounts and avail the tax advantages. 12. Opportunity Cost- represent the potential benefits that an individual, investor, or business misses out on when choosing one alternative over another. It is strictly internal cost used for strategic contemplation; it is not included in accounting profit and is excluded from external financial reporting. 13. Sunk Cost- sometimes called a retrospective cost, refers to an investment already incurred that can’t be recovered. Examples of sunk costs in business include marketing, research, new software installation or equipment, salaries and benefits, or facilities expenses. 14. Investment Cost- means the actual costs incurred on a Subject Well of drilling, completing, equipping (including but not limited to flow lines, tanks, and related equipment) to the point of product sales, and plugging and abandoning (if a Subject Well was a dry hole) and the cost of recompleting to another zone, deepening, side-tracking, or plugging and abandoning a well and any other costs considered to be capital costs 15. Capital Investment- refers to a business acquisition of a capital asset or a type of loan by a financial institution in a business. In the latter, a financial institution, commonly a venture capital group, loans a business money in exchange for a promise of repayment or a share of the profits. 16. Working Capital- working capital, also known as net working capital (NWC), is the difference between a company’s current assets—such as cash, accounts receivable/customers’ unpaid bills, and inventories of raw materials and finished goods and its current liabilities, such as accounts payable and debts. 17. Operation and Maintenance Cost- is the cost associated with operating and maintaining that component. The total O&M cost of the system is the sum of the O&M costs of each system component. 18. Disposal Cost- are expenses that are directly related to asset disposal. The costs can be significant because of the difficulty associated with the disposal of infrastructure assets. Income and expenses associated with asset disposal are dependent on whether the assets are sold, demolished, or relocated. 19. Capital- is a broad term that can describe anything that confers value or benefit to its owners, such as a factory and its machinery, intellectual property like patents, or the financial assets of a business or an individual. 20. Equity Capital- typically referred to as shareholders' equity (or owners' equity for privately held companies), represents the amount of money that would be returned to a company's shareholders if all of the assets were liquidated and all of the company's debt was paid off in the case of liquidation. 21. Debt Capital- refers to borrowed funds that must be repaid at a later date. This is any form of growth capital a company raises by taking out loans. These loans may be long-term or short-term such as overdraft protection. 22. Return on Capital- in addition to using the value of ownership interests in a company, also includes the total value of debts owed by the company in the form of loans and bonds. Return on capital= Net income Debt + Equity References https://www.investopedia.com/terms/f/fixedcost.asp https://www.investopedia.com/terms/v/variablecost.asp https://www.investopedia.com/terms/i/incrementalcost.asp https://community.ifma.org/fmpedia/w/fmpedia/recurringcost#:~:text=recurring%20cost,recurring%20cost,closely%20associated%2 0with%20facilities%20operations. https://www.indeed.com/career-advice/career-development/non-recurringvs-recurring expenses#:~:text=A%20nonrecurring%20expense%20is%20a,includes%2 0on%20its%20balance%20sheet. https://www.investopedia.com/terms/d/directcost.asp https://oamp.od.nih.gov/division-of-financial-advisory-services/indirect-costbranch/indirect-cost-submission/indirect-cost-definition-and-example https://www.investopedia.com/terms/o/overhead.asp https://www.accountingcoach.com/blog/what-is-a-standardcost#:~:text=A%20standard%20cost%20is%20described,profit%20plan%2 0and%20operating%20budgets. https://www.investopedia.com/terms/c/cashcost.asp#:~:text=What%20Is%2 0Cash%20Cost%3F,form%20of%20payment)%20exchanges%20hands. https://businessjargons.com/book-cost.html https://www.investopedia.com/terms/o/opportunitycost.asp https://www.productplan.com/glossary/sunkcost/#:~:text=A%20sunk%20cost%2C%20sometimes%20called,and%20be nefits%2C%20or%20facilities%20expenses https://www.lawinsider.com/dictionary/investment-costs https://www.law.cornell.edu/wex/capital_investment https://www.investopedia.com/terms/w/workingcapital.asp#:~:text=our%20e ditorial%20policies,What%20Is%20Working%20Capital%3F,as%20account s%20payable%20and%20debts https://www.homerenergy.com/products/pro/docs/latest/operation_and_mai ntenance_cost.html#:~:text=The%20Operation%20and%20Maintenance% 20(O%26M,cost%20as%20an%20annual%20amount. https://www.investopedia.com/terms/a/asset-disposalplan.asp#:~:text=Disposal%20costs%20are%20expenses%20that,sold%2 C%20demolished%2C%20or%20relocated https://www.investopedia.com/terms/c/capital.asp https://www.investopedia.com/terms/e/equity.asp https://www.investopedia.com/ask/answers/032515/what-differencebetween-cost-debt-capital-and-costequity.asp#:~:text=Debt%20capital%20refers%20to%20borrowed,owner's %20interest%20in%20the%20firm https://www.investopedia.com/ask/answers/09/return-on-equity-vs-returnon-capital.asp
