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Fixed Costs: constant, independent of the output/activity. Property taxes, insurance, salaries, license fees, rent, etc… Variable Costs: proportional to the activity levels. Direct materials, direct labor costs, etc. Total variable cost (TVC) = Unit Variable Cost (VC) * Quantity (Q) Marginal Costs: variable cost for one more unit of output Average Costs: total cost per number produced Simple Interest Interest computed only on original sums. F=P*i*n Compound Interest Interest on the interest! F = P*(F/P, i, n) F = P * (1+n) i

Nominal Interest: Annual interest, APR Effective Interest: How much is actually charged when compounded differently (monthly, quarterly, etc.) ie = (1 + r/m) m – 1 Where r is the nominal rate and m is the number of compounding periods. Continuous Compounding: compounds continuously, mathematically close to daily compounding. The effective rate increases, but at a slowing rate. F = P*(F/P, r, n) Uniform Series Payment: [F/A, i, n] [A/F, i, n] [P/A, i, n] [A/P, i, n] F = P (e r n)

Linear Interpolation: plot interest vs. [X/Y, i, n] to find an unknown interest rate

Arithmetic Gradient: growing or shrinking payment with an initial amount, gradient begins at period 2. P = [P/A, i, n] + [P/G, i, n]

choose the lower cost. choose the higher cost. Incremental Rate of Return (ΔIRR): used to find a rate of return on multiple alternatives Difference in higher and lower initial costs. General strategy is to pick a couple interest rates to create a bracket. . then use linear interpolation. Also the interest rate paid on the unpaid balance of a loan such that the payment schedule makes the unpaid loan balance equal to zero when the final payment is made. If ΔIRR < MARR. If ΔIRR ≥ MARR.Capitalized Cost: P = A/i Internal Rate of Return: interest rate at which the present worth and equivalent uniform annual worth are equal.

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UsefulNot usefulEngineering Economics notes

Engineering Economics notes