Engineering Economy

Date: Nov 22, 2018


XpertLearning was founded by Janine Croft and Paul Michael Gledhill in 2003 (Cornerstone, n.d.). The company is focused on providing learning solutions to the academic and corporate world. The company is one of the leading e-learning providers in the UAE and has made immense profits since its inception. It uses the latest technology to provide e-learning facilities to its customers. The website of the company is accessible from all parts of the world, and anyone with Internet access can enjoy products and services of this company.

Types of Costs Incurred by the Company

  • These include the following types of costs:
  • Direct costs can be completely spent on the production of goods and services. These include materials, labor, and others.
  • Indirect costs cannot be linked to the production of goods and services, but they are a vital part of the overall cost structure. These include administration, personnel and security costs.
  • Fixed costs are expenses that do not depend upon the amount of goods and services produced by the business. They may include rent and salaries.
  • Variable costs are expenses that change with the volume of goods or services produced by the business. They may include electricity or phone bills.
  • Total Costs = Fixed Costs + Variable Costs.
  • Cost estimate is the approximation of costs that will be incurred in a project or a program. It is a result of the cost estimation process that is conducted by higher authorities.
  • Overhead costs are the ones incurred while operating the business. Examples of these include rent, electricity, and wages.
  • Opportunity costs are benefits that the business could have achieved, if it had used another alternative.
  • Sunk costs are the past expenses that the business has already incurred and hence cannot be recovered.
  • Breakeven is the point, whereby the business is making neither profits nor losses. It essentially occurs when the costs incurred by the company are equal to the revenue generated.
  • Companies and businesses finance their projects and ventures either through equity financing or through loans. The latter never come for free. The provider of funds always wants rewards, which are actually costs spent on the fund-recipient business. These are known as finance costs.

Techniques Used to Measure Costs

As far as fixed costs are concerned, they are easy to measure. All costs that a business has to pay under any circumstances can be classified as fixed. The building rent, salaries and personal expenses are some of the fixed costs that cannot be avoided (“Fixed Cost,” n.d.).

Variable costs are a little tricky to measure, due to they change with production. The easiest way to measure them is through using the following formula:

Variable Costs = Revenue – Fixed Costs

Direct costs are quite easy to deal with. Anything that is directly related to the production of goods or services is a direct cost. The administration has to recognize these resources and adding costs on each one of these will give total direct costs (Pietersz, 2007).

Controlling and Monitoring Costs

Controlling Fixed Costs

Fixed costs are sometimes quite difficult to control, due to the company has to pay them anyway. Nevertheless, proper planning can always reduce the amount spent on these. Fixed costs generally include rent and salaries. The former is simply unavoidable, due to the business has to pay for its premises. However, salaries can always be maintained. If the company is not producing enough for some time, it can discharge some employees to reduce fixed costs.

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Controlling Variable Costs

Variable costs are relatively easier to control. Since they change with production, the only way to reduce them is through applying some cost-saving programs within the company (Odland, 2012). For example, electricity is a variable cost that can easily be controlled by using energy-saving lights. Day light saving programs should be initiated, and employees should be insisted to save energy. The latter should be instructed not to use office phones for personal calls. It can reduce phone bills.

Costs Incurred by the Organization under Analysis

The organization that I work for is an online company that provides online education to students all over the world. It essentially delivers services to people, and in return, they pay for it. The company delivers its services via a very sophisticated and well-formed website. The latter runs on servers, and this presents a fixed cost for the company. The firm has rented out cloud servers from Microsoft and has to pay the rent for the hardware it uses. In case of the extra usage of servers, the company has to pay extra. Thus, it will incur a variable cost and depend entirely on the usage of services offered by Microsoft. It can be summed up as follows: the revenue of the company will be direct fees paid by customers. Out of this revenue, the firm will pay all other costs.

Ways of Monitoring Costs by the Company under Analysis

XpertLearning has created a complete business plan, which has helped to do the cost analysis. As a result of the latter, it incurs the following fixed costs: salaries, servers rent, and SMS gateway rent. Variable costs include SMS price, rent for extra usage, and bonuses paid to teachers.

In the complete business plan, the company has mentioned several ways that will be used to reduce expenses. To decrease load on servers and hence their overuse, the firm will use the process of caching. It will cache all static data on the users’ browsers, and hence the user will not have to download them on every visit.

The company will try to save on teachers’ salaries by looking for open-source lectures of good quality. It will also outsource the task of lecture creation to that part of the world, where labor is cheap, and part-time teachers are available.

Table 1. Cost Break-up
Cost name Type Amount ($per year)
Server rent Fixed $5000
SMS gateway rent Fixed $4500
Cost for SMS traffic Variable Cost per SMS * total SMS sent
Salary of CEO Fixed $25000
Salary of partner teachers Fixed $125000
Premise rent Fixed $10000
Advertisement cost Variable $30000

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All the above costs are real. They will affect the operations of Virtual Learning Environment in the times to come.


XpertLearning is an online company. It is a type of company I would like to work for. The business plan of the firm includes the analysis of all important costs, and it helped a lot to make this report. The company has already calculated its revenue and profits for several years, and if circumstances remain positive, profits will not vary a lot.

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