Technology & Engineering
Elements of Cost
The elements of cost refer to the various components that contribute to the total cost of producing a product or delivering a service. These elements typically include direct materials, direct labor, and manufacturing overhead. Understanding and analyzing these cost elements is essential for effective cost management and decision-making within a business or organization.
Written by Perlego with AI-assistance
Related key terms
1 of 5
4 Key excerpts on "Elements of Cost"
eBook - ePub- Gideon Samid(Author)
- 2020(Publication Date)
- CRC Press(Publisher)
Computers gave the cost engineer a tool that added a new dimension to the profession. The use of computers in itself is an engineering endeavor, and so today the term “(cost) engineering” has a dual meaning: expertise not only in the subject matter but also in using computers in the process of optimizing resource allocation. The modern cost engineer is a central player in a competitive economy. His or her responsibility is to find ways to extract more results from finite dollars and limited time. And, conversely, he or she tries to engineer a solution to the problem of achieving a target result with a smaller investment.Available resources are finite; expressive imagination is infinite. This anomaly is the challenge of cost engineering.
Passage contains an image
1Elements
Cost engineering is a two-way window. Looking through this window the business community relates to science and technology. Looking the other way, scientists and engineers hear and see what business wants and does.Cost engineering answers questions: How much does it cost? How long will it take? And later, Does it really cost and take as much and as long as predicted? The cost engineering components that handle these questions are cost estimation, scheduling, and cost control, the Elements of Cost engineering.1The difficulty or simplicity of handling these questions depends on (1) the complexity of the subject matter, (2) the prevailing constraints, (3) the extent to which 1 and 2 are given or known. (1)
- Adedeji B. Badiru, Olufemi A. Omitaomu(Authors)
- 2007(Publication Date)
- CRC Press(Publisher)
17 chapter two Cost concepts and techniques The term cost management refers, in a project environment, to the functions required to maintain effective financial control of the project throughout its life cycle. There are several cost concepts that influence the economic aspects of managing engineering and industrial projects. Within a given scope of analysis, there may be a combination of different types of cost aspects to consider. These cost aspects include the ones defined here: Actual cost of work performed: The cost actually incurred and recorded in accomplishing the work performed within a given period of time. Applied direct cost: The amounts recognized in the time period associ-ated with the consumption of labor, material, and other direct resources, without regard to the date of commitment or the date of payment. These amounts are to be charged to work-in-process (WIP) when resources are actually consumed, material resources are with-drawn from inventory for use, or material resources are received and scheduled for use within 60 d. Budgeted cost for work performed: The sum of the budgets for com-pleted work plus the appropriate portion of the budgets for level of effort and apportioned effort. Apportioned effort is that, which by itself is not readily divisible into short-span work packages, but is related in direct proportion to measured effort. Budgeted cost for work scheduled: The sum of budgets for all work packages and planning packages scheduled to be accomplished (in-cluding work in process) plus the amount of level of effort and apportioned effort scheduled to be accomplished within a given period of time. Direct cost: Cost that is directly associated with actual operations of a project. Typical sources of direct costs are direct material costs and direct labor costs. Direct costs are those that can be reasonably mea-sured and allocated to a specific component of a project.
- William Bolton(Author)
- 2014(Publication Date)
- Newnes(Publisher)
5 Cost elements 5.1 Costs This chapter is about the various elements that can be considered to make up the cost of making a product. By considering such elements, products can be costed and also such costing used as a management tool to monitor and control production. Chapter 6 is about monitoring and controlling costs. To illustrate the types of cost elements that occur with manufacturing, consider the situation of a manufacturing business that makes, say, plastic tubing. The bills that will have to be paid might include: Rent for the premises Interest on bank loans Stamps and stationery Telephone bill Payments for raw materials Electricity for light, heat, and power Maintenance items for production machines Repairs to machines New machines Packaging for products Delivery costs for products Wages and salaries for those directly involved in production Wages and salaries for those not directly involved in production etc. Some of these costs depend on the volume of output from the business. For example, the more plastic tubing they make the greater the cost for raw materials. Such costs are referred to as variable costs or direct costs. Figure 5.1(a) shows how such costs can vary directly in proportion to the volume of output. Some of the costs will not be affected by the volume of output. For example, the rent for the premises will be the same, regardless of whether any plastic tubing is produced or not. Such costs are referred to as fixed costs. Figure 5.1(b) shows how such costs are constant and do not vary as the output level changes. Some of the costs vary as the level of output changes but only indirectly. For example, maintenance costs for the machinery will increase the more the machinery is used. There might be planned maintenance which is undertaken whatever the output volume and so is a fixed cost and a variable element which is directly related to the output volume.
- Zahid A. Khan, Arshad N. Siddiquee, Brajesh Kumar, Mustufa H. Abidi(Authors)
- 2018(Publication Date)
- Cambridge University Press(Publisher)
Generally, cost estimations are required to be made in the initial stages of implementation of a project or a system. Maintenance and upgradation costs are estimated as a percentage of the first cost and they are subsequently added to make the trial cost estimates. Typical examples of a project include physical items such as building, bridge, manufacturing plant etc. On the other hand, a system refers to an operational design involving non-physical items such as processes, software, etc. Typical examples of a system include ERP software, GPS system etc. Cost comprises direct costs and indirect costs. Direct costs refer to costs that are incurred due to the involvement of several resources, such as people, material and machines, in the Cost Estimation 423 activities. Indirect costs are mainly incurred due to the factors that support the activities. Cost estimation is a complex activity and to successfully perform this activity the organizations must address the following issues: (i) Cost components to be estimated, (ii) Approach to cost estimation, (iii) Accuracy of cost estimates and (iv) Techniques for cost estimation. 15.2.1 Cost Estimates Depending upon the nature of a project, that is whether it is simple or complex, several cost components are estimated. For example, for a project which involves a single piece of equipment, the cost components are the first cost P and annual operating cost (AOC). AOC is also called maintenance and operating (M & O) cost. First cost P has several cost elements, some of them are directly estimated whereas others are estimated based on the examination of records of simple projects. Typical cost elements of the first cost are equipment cost, delivery charges, installation cost, taxes and insurance and cost of training of personnel for the use of the equipment. Similarly, the cost elements of AOC are direct labor cost, direct materials, maintenance cost and rework and rebuild cost.
Index pages curate the most relevant extracts from our library of academic textbooks. They’ve been created using an in-house natural language model (NLM), each adding context and meaning to key research topics.
