Discussion
Consider the following pairs of term and its definition:
Life cycle cost - Total cost from concept to disposal
Breakeven quantity - Units at which cumulative revenue meets cumulative cost
Learning curve - Cost reduction per doubling of cumulative output
Direct operating cost - All costs including administration and marketing
How many of the pairs given above are correctly matched?
Answer: B
Correct answer: Only three
Three pairs are right. Life cycle cost is the total from concept to disposal; breakeven quantity is the number of units at which cumulative revenue meets cumulative cost; and a learning curve expresses the cost reduction per doubling of cumulative output.
The fourth is wrong. Direct operating cost covers only what it takes to fly the aircraft - fuel, crew, maintenance, depreciation, insurance, fees - and specifically excludes administration and marketing, which are indirect. The exclusion is what makes it a fair basis for comparing aircraft types.
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