Basic cost classifications in project economics: identify the correct definitions of first cost, fixed costs, and variable costs for a new or existing project.

Introduction / Context:Clear cost classification supports accurate forecasting, budgeting, and decision-making. Engineering projects use standard definitions to separate the upfront capital (first cost) from operating costs, which divide into fixed and variable components across the expected operating range.

Given Data / Assumptions:

• Decision context includes initial investment and operating phase.
• Operating range is the normal capacity band, excluding extreme conditions.
• Proportionality for variable costs refers to activity drivers (e.g., machine hours, output).

Concept / Approach:First cost is the lump-sum capital needed at project inception. Fixed costs (e.g., salaries of key staff, insurance, lease) are insensitive to moderate volume changes. Variable costs (e.g., consumables, energy tied to output) fluctuate with activity. Accurate separation allows better break-even analysis and sensitivity testing.

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