Time value of money is one of the most important concepts in finance. It means that the value of a rupee received one year from now is not the same as the value of a rupee received today. The concept of time value of money deals with the fact that can amount of money as seen in the future is not valuable as the same amount of money received at ...
Elements of cost:
There are three elements of cost: 1. Material cost 2. Labor cost and 3. Expenses
Material Cost: cost of raw materials, spare parts, consumable materials, packaging materials
Labor Cost: cost of skilled and unskilled labor employed in construction or production processes
Expenses: cost of special design, drawings or layouts, cost of purchase or hiring of tools and equipement for particular job and maintenance cost of such tools, advertisements
Prime and Overheard Cost:
The process of calculating future values = compounding, ie the sum of beginning amount and the interest earned.
The process of finding out the present value = discounting ie the inverse of compounding.
Basically for a single cash flow:
F = P [F/P, i%, N]
F = P (1+i)N
!!! The following are the cases for discrete compounding and discrete cash flow.
B/C ratio is defined as the ratio of equivalent worth of benefit to the equivalent worth of cost. Equivalent worth may be either Present worth (Pw), Annual worth (Aw) or Future worth (Fw).
Benefit to Cost ratio is also known as Profitability Index (PI) being the indicator of the profit.
Types of B/C Ratio:
The project is economically feasible only if
B/C ? 1
B/C Ratio formulae:
I = ...
Break Even Analysis is a term given to the study of the inter-relationship between cost, volume and profits at various levels of activities. It is the most widely known form of the cost-volume-profit analysis. It is one of the most important techniques of profit planning and control.
Advantages of Break Even Analysis:
It is a simple device to understand the accounting data.
It provides basic info for further profit improvement studies.
It is a ...
The period of time required to recover the net investment is called payback period, PB.
The project which pays back the initial investment in the smallest period is acceptable under this method.
If (calculated PB < standard PB) => Accept the project
If (calculated PB > standard PB) => Reject the project
Merits of payback period:
ü Easy to understand and inexpensive to use.
ü Easy and crude way to analyze the risk.
SOCIAL COST BENEFIT ANALYSIS (SCBA)
Social Cost Benefit Analysis(SCBA) is a methodology developed for evaluating investment projects from the point of view of the society (or economy) as a whole. It is a tool for economic appraisal of a project from social consideration.
For the example, when consumers go to the grocery shop to buy vegetables they may be disappointed with their high price, as consumer wants them cheaper.
One of the most important responsibilities of the management of computer using business firms is to assure the security and quality of its information services activities. Controls are needed that ensure the accuracy, integrity, and safety of the information processing activities and resources of the organization and its end users.
Here are three real world problems in controlling information system, sourced from Computer Magazines (individual source quoted below), for analysis in ...
Mechanization is the use of machinery to replace human or animal labor, especially in agriculture and industry. Mechanization is minimizing or reducing labor content so as to maximize performance and economy. It spots the use of control system
for automatic or semi-automatic production.
Types of Economic Variances
There are mainly 4 types of variances in engineering economics, namely
Direct material cost variance
Direct wages/labor cost variance
Variable overhead variance
Fixed overhead variance
Negative (-) variance is always favorable ie actual cost (-) << standard cost (+).
1. Direct material cost variance
This is the difference between standard cost of direct material specified for the o/p and the actual cost of direct materials used.