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Product-level costs

Product-level costs arise from activities to support the production of the product or model. For example, engineering support costs for process modifications and product design depend on the existence of the product line and do not vary with the number of units or number of batches produced.Variables: All costs for ...

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Batch-level costs

Batch-lever costs arise from activities performed once for each batch or lot of products. For example, machine setups, cleanup, moving the batch to the next step in the production process depend on the number of batches rather than the number of units in each batch. Purchase orders and inspections are ...

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Unit level costs

Unit level costs arise from activities that are performed at least once for each unit of product. For example, machining a surface, drilling a hole, or attaching a subassembly must be done for eacht and every unit produced. These costs include direct labor and material, machine costs, and direct energy ...

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Opportunity costs

Opportunity costs measure what the firm forgoes when it chooses a specific action. The notion of opportunity costs is crucial in decision making.Variables: cost of capital, avg net valueCalculation: Cost of capital * average net valueMeasured as: Value ($/€), Interpretation of results: Lower is better

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Residual Income

Some firms use this KPI to overcome some of the incentive deficiencies of ROI, such as underinvesting. Residual income measures divisional performance by subtracting the opportunity cost of capital employed from division profits.Variables: Opportunity costs of capital employed, division profitsCalculation: Division profits - Opportunity costMeasured as: Value ($/€), Interpretation of ...

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