Chapter 2

COST CONCEPT
Dr Rd Khairilhijra Khirotdin
FKASS Mezzanine Floor, Akademia I Block, Room 28
khairil@uthm.edu.my
Costs can be categorized in several different ways
Direct: can be measured and allocated to a
specific work activity
Indirect: difficult to attribute or allocate to a
specific output or work activity (also overhead or
burden)
Standard cost: cost per unit of output, established
in advance of production or service delivery

Copyright 2012 by Pearson Education, Inc.

Engineering Economy, Fifteenth Edition
Upper Saddle River, New Jersey 07458
By William G. Sullivan, Elin M. Wicks, and C. Patrick Koelling
All rights reserved.
We need to use common cost terminology...
Cash cost: a cost that involves a payment of
cash.
Book cost: a cost that does not involve a
cash transaction but is reflected in the
accounting system.

Copyright 2012 by Pearson Education, Inc.

Engineering Economy, Fifteenth Edition
Upper Saddle River, New Jersey 07458
By William G. Sullivan, Elin M. Wicks, and C. Patrick Koelling
All rights reserved.
 We need to use common cost terminology...
Sunk cost: a cost that has occurred in the past and has no
relevance to estimates of future costs and revenues related
to an alternative course of action (Sullivan et al., 2012)
Kos hangus: Kos pada masa lepas. Ia tidak boleh diambil
kira dalam membuat keputusan pada masa hadapan
(Rosnah, 2007)
Contoh:
Tempahan Kereta (Model A) - anda membayar RM 1,000. Kereta dijangka
diterima dlm tempoh 7 bulan.
Selepas 3 bulan, Model B dilancarkan - ciri lebih baik.
Jika anda membatalkan tempahan Model A, wang pendahuluan RM 1,000
dikira sebagai kos hangus.

Copyright 2012 by Pearson Education, Inc.

Engineering Economy, Fifteenth Edition
Upper Saddle River, New Jersey 07458
By William G. Sullivan, Elin M. Wicks, and C. Patrick Koelling
All rights reserved.
 More common cost terminology
Opportunity cost: the monetary advantage
foregone due to limited resources. The cost of
the best rejected opportunity (Sullivan et. al., 2012)

Kos lepas barang: memiliki sesuatu barangan di

mana barangan lain terpaksa dilepaskan (Rosnah,
2007)
Contoh:
Anda hanya ada RM50 (kewangan terhad)
Anda ingin membeli baju dan buku, masing-masing berharga RM50. Jika
anda memilih buku, maka baju perlu dilepaskan.
Oleh itu, kos lepas sebuah buku ialah sehelai baju.

Copyright 2012 by Pearson Education, Inc.

Engineering Economy, Fifteenth Edition
Upper Saddle River, New Jersey 07458
By William G. Sullivan, Elin M. Wicks, and C. Patrick Koelling
All rights reserved.
 More common cost terminology
100 %
Life-cycle cost:
75 %
the summation of all
costs related to a
product, structure,
system, or service
during its life span.
Masa
Fasa perolehan
Mengenal pasti Fasa operasi

pembangunan
rekabentuk dan
Perincian

Pengeluaran

senggaraan
Operasi dan

Pelupusan
Copyright 2012 by Pearson Education, Inc.
Engineering Economy, Fifteenth Edition
Upper Saddle River, New Jersey 07458
By William G. Sullivan, Elin M. Wicks, and C. Patrick Koelling
All rights reserved.
 Jenis-jenis Kos dalam Kitar Hayat Aset

Kos Permulaan
Kos menjalankan aktiviti dalam fasa perolehan.
Ia dilaburkan sekali sahaja (tidak berulang)
Dikenali juga sebagai kos pelaburan dan pelaburan modal.
Pembelian mesin kos asas mesin, pengangkutan, latihan,
pemasangan, alatan sokongan (komputer, automasi dll).
Kos Operasi dan Senggaraan
Kos menjalankan aktiviti dalam fasa operasi.
Ia berulang-ulang dalam mengendali / menyelenggara mesin.
Terdiri daripada :
Kos tetap : kos pentadbiran, buruh tak langsung, insuran
Kos berulang : Kos bahan langsung, buruh langsung, alat ganti
Kos Pelupusan
Kos bagi aktiviti pelupusan aset / item.
Ia dibelanjakan sekali sahaja seperti pengangkutan, bahan dan
buruh terlibat dalam melupus aset.
Cth: Kos pelupusan sisa toksid
Terdapat aset yang ada nilai jualan di akhir kitar hayat.
Nilai sisa = nilai tukar beli kos pelupusan.
 More common cost terminology
Kos Eksplisit: Jumlah wang yang dibelanjakan oleh pengeluar
dalam proses pengeluaran produk / perkhidmatan
Contoh: bayaran gaji, sewa, insuran, iklan & promosi.

Kos Implisit: Kos pengeluar dalam proses pengeluaran produk

/ perkhidmatan menggunakan input sedia ada.
(Iaitu, bayaran yang akan diperoleh jika pengeluar menjalankan
pekerjaan lain)
Contoh :
Petani sekeluarga menguruskan sawah padi sendiri (menggunakan tenaga dan
alatan sendiri).
Kos implisit ialah gaji petani, isteri dan anak-anak yang akan diperoleh jika
masing-masing bekerja dengan majikan lain.

Copyright 2012 by Pearson Education, Inc.

Engineering Economy, Fifteenth Edition
Upper Saddle River, New Jersey 07458
By William G. Sullivan, Elin M. Wicks, and C. Patrick Koelling
All rights reserved.
 More common cost terminology
Kos sosial: ditanggung oleh masyarakat akibat kesan negatif
Contoh : Perubahan alam sekitar (banjir, tanah runtuh),
Kesesakan lalulintas (masa, udara kotor).

Copyright 2012 by Pearson Education, Inc.

Engineering Economy, Fifteenth Edition
Upper Saddle River, New Jersey 07458
By William G. Sullivan, Elin M. Wicks, and C. Patrick Koelling
All rights reserved.
 Why cost concept is important for engineers

Engineer have
to make decision in facility location.

to make decision in material selection.

MANUFACTURING

Sales

1995 Corel
Corp.
 Implement cost concept
in selecting facility location
When is the problems of location identification occurs?

Starting the new Business

Business Enlargement
Centralization
Economics
What are the factors that is effecting location
identification?
Close to market & raw material suppliers
Ease of getting labor
Geographical factor
Social acceptability
Ease of getting other utilities
Procedures & laws
 What is facility ?
Production: any discrete parts or process industry
facilities
Health care: hospitals, clinics, rehab. centers, nursing
home

Education: schools, colleges, day care centers, libraries

Food: restaurants, fast-food places, banquet halls

Commercial/Residential: shopping malls, office

buildings, banks, houses, hotels, motels
Government/Public Services: court house, IRS, INS, post
office

Transportation: airports, train stations, bus terminals

Public assembly: stadium, auditoriums, theaters,
Religious: temples, chapels, churches
 Location Cost-Profit-Volume Analysis
(Break Even Analysis)

For cost analysis, the total cost are:

Total Cost = FC + VC(Q)

FC = Fixed Cost
VC = Variable Cost per unit
Q = Quantity/volume of output
Total Costs
The sum of variable and fixed costs.
or
TC = VC + FC

Fixed Costs
The portion of the total cost that remains constant regardless
of output levels.
e.g. land, property taxes, insurance, equipment, and building

Variable Costs
The portion of the total cost that varies directly with the
volume of output.
e.g. labor, materials, transportation, and variable overhead
 Assumptions
1. Only one product is involved (main
product)
2. Variable cost/unit is constant regardless of
production quantity
3. Fixed cost remains unchanged when output
quantity changed
4. Sale price is fixed regardless of sale
quantity
 Location
Break-Even Analysis
TC = FC + VC(Q)

Fixed Costs Variable Costs Total Costs

Community per Year per Unit (Fixed + Variable)
A $150,000 $62
B $300,000 $38
C $500,000 $24
D $600,000 $30
TC = FC + VC(Q) Location
Break-Even Analysis
for 20,000 units

Fixed Costs Variable Costs Total Costs

Community per Year per Unit (Fixed + Variable)
A $150,000 $62
B $300,000 $38
C $500,000 $24
D $600,000 $30

Total Variable Costs

TC = FC + VC(Q) Location
Break-Even Analysis
for 20,000 units

Fixed Costs Variable Costs Total Costs

Community per Year per Unit (Fixed + Variable)
A $150,000 $62
B $300,000 $38
C $500,000 $24
D $600,000 $30

Total Variable Costs

$62 (20,000)
TC = FC + VC(Q) Location
Break-Even Analysis
for 20,000 units

Fixed Costs Variable Costs Total Costs

Community per Year per Unit (Fixed + Variable)
A $150,000 $62
B $300,000 $38
C $500,000 $24
D $600,000 $30

Total Variable Costs

$62 (20,000) = $1,240,000
TC = FC + VC(Q) Location
Break-Even Analysis
for 20,000 units

Fixed Costs Variable Costs Total Costs

Community per Year per Unit (Fixed + Variable)
A $150,000 $62 $1,390,000 (P2)
B $300,000 $38
C $500,000 $24
D $600,000 $30

Total Variable Costs

$62 (20,000) = $1,240,000
TC = FC + VC(Q) Location
Break-Even Analysis
for 20,000 units

Fixed Costs Variable Costs Total Costs

Community per Year per Unit (Fixed + Variable)
A $150,000 (P1) $62 $1,390,000 (P2)
B $300,000 $38 $1,060,000
C $500,000 $24 $ 980,000
D $600,000 $30 $1,200,000
 Fixed Costs Total Costs
Community per Year (Fixed + Variable)
A $150,000 $1,390,000
B $300,000 $1,060,000
C $500,000 $ 980,000
Annual cost (thousands of dollars)

1600
D $600,000 $1,200,000

1400

1200

1000

800

600

400

200

0
2 4 6 8 10 12 14 16 18 20 22

Q (thousands of units)
 Fixed Costs Total Costs
Community per Year (Fixed + Variable)
A $150,000 $1,390,000
B $300,000 $1,060,000
C $500,000 $ 980,000
D $600,000 $1,200,000
Annual cost (thousands of dollars)

1600 A
(20, 1390)
1400
(20, 1200) D
1200 (20, 1060) B
C
1000
(20, 980)
800

600

400

200

0
2 4 6 8 10 12 14 16 18 20 22

Q (thousands of units)
 Fixed Costs Total Costs
Community per Year (Fixed + Variable)
A $150,000 $1,390,000
B $300,000 $1,060,000
C $500,000 $ 980,000
Annual cost (thousands of dollars)

1600
D $600,000 $1,200,000 A
(20, 1390)
1400
(20, 1200) D
1200 (20, 1060) B
C
1000
(20, 980)
800

600
Break-even
400
point
200
A best
0
2 4 6 8 10 12 14 16 18 20 22

Q (thousands of units)
 Fixed Costs Total Costs
Community per Year (Fixed + Variable)
A $150,000 $1,390,000
B $300,000 $1,060,000
C $500,000 $ 980,000
Annual cost (thousands of dollars)

1600
D $600,000 $1,200,000 A
(20, 1390)
1400
(20, 1200) D
1200 (20, 1060) B
C
1000
(20, 980)
800 Break-even point
600
Break-even
400
point
200
A best B best
0
2 4 6 8 10 12 14 16 18 20 22
6.25 14.3
Q (thousands of units)
 Fixed Costs Total Costs
Community per Year (Fixed + Variable)
A $150,000 $1,390,000
B $300,000 $1,060,000
C $500,000 $ 980,000
Annual cost (thousands of dollars)

1600
D $600,000 $1,200,000 A
(20, 1390)
1400
(20, 1200) D
1200 (20, 1060) B
C
1000
(20, 980)
800 Break-even point
600
Break-even
400
point
200
A best B best C best
0
2 4 6 8 10 12 14 16 18 20 22
6.25 14.3
Q (thousands of units)
 Location
Break-Even Analysis
Annual cost (thousands of dollars)

1600 A
(20, 1390)
1400
(20, 1200) D
1200 (20, 1060) B
C
1000
(20, 980)
800 Break-even point
600
Break-even
400
point
200
A best B best C best
0
2 4 6 8 10 12 14 16 18 20 22
6.25 14.3
Q (thousands of units)
 Break-Even Quantities

(A) (B)
$150,000 + $62Q = $300,000 + $38Q
Q = 6,250 units

(B) (C)
$300,000 + $38Q = $500,000 + $24Q
Q = 14,286 units

Ekonomi Kejuruteraan (BPK 30902)

Contoh 2 :

Pengeluaran 1 kg kopi memerlukan kos berubah =RM5 dan

Kos tetap sehari = RM300.
a) Terbitkan persamaan linear kos pengeluaran kopi.
b) Kirakan kos pengeluaran bagi 1,000 kg kopi diproses dalam
sehari.

Penyelesaian:
a) Diberi FC = RM300 / hari, VC = RM5 / kg
Jumlah kos, TC = F + VQ = 300 + 5Q

b) Bagi 1,000 kg kopi,

TC = (300/hari)(1 hari) + (5 /kg) x (1000 kg/hari)(1 hari)
= 300 + 5(1000)
= RM 5,300

Ekonomi Kejuruteraan (BPK 30902)

Contoh 3 :
Kos mengeluarkan 10 helai kemeja = RM 350, dan
Kos mengeluarkan 20 helai kemeja = RM 600
a) Terbitkan persamaan linear kos pengeluaran kemeja.

Penyelesaian:
a) Persamaan Jumlah kos, TC = F + VQ
(1) } Q1 = 10, TC1 = 350 ; 350 = FC + 10V --------(i)
(2) } Q2 = 20, TC2 = 600 ; 600 = FC + 20V --------(ii)

Cari nilai V ; (ii) (i) } 250 = 10V, V = 25

Cari nilai FC ; V = 25, (i) } 350 = FC + 25(10)

FC = 100

Persamaan kos, TC = 100 + 25Q

Ekonomi Kejuruteraan (BPK 30902)

Calculation of Profit and Break Even Point

Profit = Total Return (TR) Total Cost (TC)

= (P x Q ) (FC + VC )

Profit TR
Lost
BEP
TC
Cost
VC

FC

Q0 Quantity
Contoh 4 :
Daripada Contoh 2,
Persamaan linear Jumlah kos, TC = 300 + 5Q
Katakan kopi dijual RM10 per Kg.
a) Hitungkan titik pulang modal.
b) Keuntungan jika syarikat mengeluarkan / menjual kopi
(i) 100 Kg sehari (ii) 50 Kg sehari

Penyelesaian:
a) Diperolehi TC = 300 + 5Q
Pada titik pulang modal, Jumlah Hasil(TR) = Jumlah Kos(TC),
TR = Harga (P) x Kuantiti (Q) = 10Q
10Q = 300 + 5Q
Q = 60 (Pada titik pulang modal, kuantiti keluaran ialah 60 kg sehari)
b) Keuntungan = TR TC
(i) = 10(100) (300 + 5(100)) = RM200 (untung)
(ii) = 10(50) (300 + 5(50)) = RM-50 (rugi)

Ekonomi Kejuruteraan (BPK 30902)

 Additional Question

Sharp Manufacturing (SMM) manufactures flat screen TV for global

market. This industry requires total manufacturing cost of RM500,000
to produce 100 units TV per month. The production can be increased
to 150 units per month with total manufacturing cost of RM600,000.

Formulate linear equations for this case.

Determine the fixed cost (FC) and variable cost (VC)

MANUFACTURING

MANUFACTURING
PLANNING
 Solution

TC1 = RM500,000, Q1 = 100 units/month.

TC2 = RM600,000, Q2 = 150 units/month

Formulate linear equations for this case.

500,000 = FC + 100V ----------- (1)
600,000 = FC + 150V ----------- (2)

Determine the fixed cost (FC) and variable cost (V)

MANUFACTURING
From (1); FC = 500000 100V
SubstituteMANUFACTURING
(1) into (2); 600000 = 500000 -100V + 150V
PLANNING
V = 100000/50 = RM 2000
From (1); FC = 500000 100(2000)
FC = RM 300,000