CTC 475 Review

Breakeven ProblemsDetermine equations for TR, TC, NPMaximize/minimize nonlinear equations

by taking derivative, setting = 0, and solving for D

Find breakeven value(s) by setting TR=TC

CTC 475

Cost Estimates & Accounting Principles

Objectives

Know the different types of cost estimates

Understand balance sheetsUnderstand income statements

Cost Estimates

Many times costs for a project must be estimated

Three general types Order-of-Magnitude (+/-50%) Preliminary Estimates (+/-20%) Detailed Estimates (+/-5%)

As the precision of the estimate improves, the cost of making the estimate increases

Estimate Example

Item numbers & DescriptionUnit (CM, EA, LS)Quantity & PriceSpecs describe how item is to be paid

Estimate Example

Historical Costs can be found in company records or govt. documents (ex. Bid Price Book)

Other Sources for prices (Means, manufacturer’s data, etc)

Estimate Example

When project goes out to bid, each contractor creates an estimate

The contractor with the lowest bid usually gets the job

Accounting Principles

Primary function is recording, classifying, summarizing and interpreting the financial data of an organization

Two Basic Financial Reports

Balance Sheet

(Statement of Financial Conditions)

Income Statement

(Profit and Loss Statement)

Balance Sheet

As of a particular date (snapshot in time):

Tally AssetsTally LiabilitiesAssets – Liabilities = Net Worth

Goal is to increase net worth over time

Handout

Your Personal Balance Sheet

Assets

Current – Can be converted easily into cash (<1 year)CashWork in progressFinished goods inventory

Fixed – Cannot easily be converted into cashLandBuilding

Liabilities

Current – Debts due and payable (<1 year)Account payableNotes payable Interest payable

Fixed – Long term debt Bonds payable

Balance Sheet

Assets – Liabilities = Net Worth

or

Assets = Liabilities + Net Worth

Net Worth

Also known as equity

Balance Statement

Company Example

Balance Sheet

Depreciation / Book Value

Depreciation Reserve:Funds held to repurchase an asset

(building, machinery) when its useful life terminates

Book Value (asset): First cost – depreciation reserve

Many assets lose value over time

Income Statement

The income statement is usually more useful of the two reports since:

The annual revenues/costs for various elements are identified

Income Statement-Basic Format

SalesLess Cost of Goods Sold=Gross ProfitLess “All other expenses”=Net Profit (Before Taxes)Less Income Taxes =Net Profit (After Taxes)

Income Statement

Over a particular time period (ex. year):

Tally IncomeTally Expenses

Income – Expenses = Net Profit (loss)

Handout

Your Household Budget

Income Statement

Company Example

Income Statement

Next lecture

Job Quotes Present Economy

Problems