Question

Read and comment about the following statement and question:

Why is so important to know the variety of costs to be considered in an engineering economic analysis?(Sullivan W., Wicks E. & Patrick C., 2012, page 21.).

Answer 1

It is very important to consider the variety of costs in engineering economic analysis.

Engineering economics is a branch of economics concerned with the engineering decisions using the economic theories and principles. The branch focuses on the decision making process along with the nature of environment.

Why evaluation of costs are Important?

Costs are important to be known in order to be able to make future decisions. All the managerial level decisions that are required to be taken in the economy are dependent on the nature of costs.

Apart from that various categories of costs needs to be identifies. For example, future costs, opportunity costs, common costs and sunk costs etc. Sub-classification of costs is required in order to achieve the better efficiency. Like under the common expenses section, all the costs that are related to the material, depreciation are to be recorded. This helps make a clear understanding of the process and helps improve the economy to its best possible level.