KNC3262
Engineering
Economics
Nur Syuhada Bt Ahmad Zauzi
aznsyuhada@unimas.my
CO
CO1
PO
PO3
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CO2
PO4
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CO3
PO12
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Assessment/Evaluation Method
Calculation-based question: quiz/ test/
assignment/ final exam
Theoretical-based question: quiz/ test/
assignment/ final exam
Distribution
Assignment 1 - 10
Test 1 - 20
Final Exam - 25
%
55
Calculation-based question: quiz/ test/
assignment/ final exam
Theoretical-based question: quiz/ test/
assignment/ final exam
Assignment 2 - 10
10
Theoretical-based question: quiz/ test/
assignment/ final exam
Assignment 3- 10
Final Exam - 25
35
TOTAL
100
Resources:
Outline
 Introduction to Engineering Economics
 Engineering Costs: Cost Terminology
Learning
Outcomes
UNDERSTAND THE
MEANING OF EACH
COST TERMINOLOGY
EXPLAIN THE MEANING
OF EACH COST
TERMINOLOGY
IDENTIFY THE TYPE OF
COST BASED ON THE
SITUATION
• Cost = a resource sacrificed or forgone to
achieve a specific objective. It is usually
measured as the monetary amount (or money)
that must be paid to acquire goods and services.
Introduction Planning
Engineering Economic Decisions
Manufacturing
Investment
Profit
Marketing
Evaluating past
performance
Evaluating and predicting future
events
Accounting
Vs.
Engineering
Economy
Accounting
Engineering Economy
Past
Future
Present
10
Estimating a required investment
Forecasting a product demand
Predicting
the Future
Estimating a selling price
Estimating a manufacturing cost
Estimating a product life
Create & Design
Role of Engineers in
Business
• Engineering Projects
Analyze
Evaluate
Evaluate
• Production Methods
• Engineering Safety
• Environmental Impacts
• Market Assessment
•Expected
Profitability
• Timing of
Cash Flows
• Degree of
Financial Risk
•
Impact on
Financial Statements
• Firm’s Market Value
• Stock Price
TwoFactorsin Engineering Economic Decisions
The factors of time and
uncertainty are the defining
aspects of any engineering
economic decisions
13
A Large-Scale Engineering Project
• Requires a large sum of
investment
• Takes a long time to see
the financial outcomes
• Difficult to predict the
revenue and cost streams
(Cash flow)
14
Engineering Costs
 Evaluating a set of feasible alternatives
requires that many costs are analyzed.
 Examples include costs for:
 initial investment, new construction,
facility modification, general labor, parts
and materials, inspection and quality,
training, material handling, fixtures and
tooling, data management, technical
support
Engineering Costs
Classifications of costs
Fixed constant,
unchanging
• Rent is constant
• Typically includes building leases,
insurance, salaries,
• heating, and lighting costs.
Variable depend on
activity level
• Food depends on the number of
occupants
• Typically vary with the level of
production.
Average total
cost/number
of units
• Rent+ food+…+n/number of units
For example, in a production environment a fixed
cost, such as costs for factory floorspace and
equipment, remains the same even though the
production quantity, number of employees, or level
of work-in-process are varying.
Engineering
Costs
Labor costs are classified as a variable cost because
they depend on the number of employees in the
factory.
Thus fixed costs are level or constant regardless of
output or activity, and variable costs are changing
and related to the level of output or activity.
 Example 1
Fixed,
Variable
and Total
Costs
 An entrepreneur named ABC was considering the
money making potential of chartering a bus to take
people from his hometown to an event in a larger city.
 ABC planned to provide transportation, tickets to
the event, and refreshments on the bus for those
who signed up.
 Please identify possible fixed & variable
Fixed, Variable and TotalCosts
He gathered data and
categorized these expenses
as either fixed or variable:
Example 1
FixedCosts
VariableCosts
BusRental $ 80.00 EventTickets $ 12.50
GasExpense $ 75.00 Refreshments $ 7.50
OtherFuels $ 20.00
BusDriver $ 50.00
TotalFC
$225.00 TotalVC
$ 20.00
Fixedcost Variablecost Totalcost
$ 225.00 $
- $ 225.00
$ 225.00 $ 100.00 $ 325.00
$ 225.00 $ 200.00 $ 425.00
$ 225.00 $ 300.00 $ 525.00
$ 225.00 $ 400.00 $ 625.00
$800.00
C o s t ($)
People
0
5
10
15
20
Totalcosts
$600.00
Totalcost
$400.00
Fixedcost
$200.00
$0
5 10 15 20
Volume
THANK
YOU