M1.2 Cost Terminologies (1)

The total costs associated with the entire life span of an asset, including acquisition, operation, maintenance, and disposal.

Nonrecurring costs associated with shutting down the operation phase of the life cycle.

Retrospective costs, also known as sunk costs, are costs that have occurred in the past and have no relevance to the estimate of future costs and revenues.

Costs that are not affected by changes in activity level over a feasible range of operations for the capacity or capability available, remaining constant over a specific range of operating conditions.

Recurring annual expense items associated with the operation phase of a life cycle.

Standard Cost assists in preparing bids on products or services requested by customers by providing a basis for estimating future manufacturing costs.

Sunk costs are considered irrelevant because they are irretrievable consequences of past decisions and do not affect the analysis and comparison of future alternatives.

Variable Cost refers to costs associated with an operation that vary in total with the quantity of output or other measures of activity level, remaining constant on a per-unit basis.

Costs that are difficult to attribute or allocate to a specific output or work activity, often allocated through a selected formula.

Opportunity Cost refers to the costs incurred because of the usage of limited resources, where the opportunity to use those resources for monetary advantage in an alternative use is foregone.

Explicit Opportunity Cost has direct monetary value and represents the actual out-of-pocket expenses incurred when choosing one option over another.

Implicit Opportunity Cost does not have monetary value and represents the potential benefits that are lost when one alternative is chosen over another.

The capital required for most of the activities in the acquisition phase, also known as capital investment.

Standard Cost refers to the planned costs per unit of output that are established in advance of actual production or service delivery, developed from anticipated direct labor hours, materials, and overhead categories.

Incremental Cost refers to the additional costs that result from increasing the output of a system by one or more units, often associated with 'go/no go' decisions.

Insurance and taxes on facilities, general management and administrative salaries, license fees, and interest costs on borrowed capital.

Sunk Cost is a cost that has already occurred and cannot be recovered, making it irrelevant to future cash flows and decisions in engineering economic analysis.

Examples of Variable Costs include material used for a product/service and labor-hours needed for a product/service.

Standard Cost plays an important role in cost control and other management functions by providing a benchmark for evaluating performance.

General supplies, equipment maintenance, rent, and utilities.

Cash Cost refers to costs that involve payment in cash, checks, or electronic funds, resulting in a cash flow.

Funds required for current assets needed for the start-up and support of operational activities.

A common example of Book Cost is the depreciation charged for the use of assets, such as plant equipment.

The materials needed to make a pair of scissors are considered direct costs as they can be directly attributed to the production of that specific item.

Book Cost, also known as non-cash costs, refers to costs that do not involve cash transactions and are reflected in the accounting system. They represent the recovery of past expenditures over a fixed period of time.

Examples of sunk costs include research expenses, marketing salaries, facility expenses, and installation of new equipment.

Direct costs are expenses that can be reasonably measured and allocated to a specific output or work activity, including labor and material costs directly associated with a product, service, or construction activity.

Standard Cost is used to measure operating performance by comparing the actual cost per unit with the standard unit cost.

Unpaid interest on owner’s capital is another example of Book Cost, as it reflects a non-cash cost associated with past expenditures.