Answer the following question about the costs identified when preparing the Economic Appraisal for the short list options for the Pittville project

HOTSPOT

Answer the following question about the costs identified when preparing the Economic Appraisal for the short list options for the Pittville project.

Column 1 contains a list of the costs identified. For each cost in Column 1, decide if the cost should be included in the Economic Appraisal and select from Column 2 the type of cost it represents. Each selection from Column 2 can be used once, more than once or not at all.

Column 1

1) The additional on-going cost of electricity for the Pittville University development.

2) The money spent to date on the Old Fire Station Headquarters site feasibility study and legal advice.

3) The cost of a stand-alone technology cabin with a separate contract for specialist call-out support, paid on an as-needed basis.

4) The Highways Department will have to upgrade the access road to the Old Fire Station Headquarters site. However, this cost will NOT count against the Pittville project budget.

5) The Old Fire Station Headquarters site was to be sold but will now be used for the new campus. It is owned by the Council so there is no cost.

6) The car park at Pittville University will need to be expanded if over 1,500 students attend the university.

Column 2

A) NOT included in the Economic Appraisal

B) Fixed cost

C) Variable cost

D) Semi-variable cost

E) Step cost

View Answer

Answer: The additional on-going cost of electricity for the Pittville University development should be included in the Economic Appraisal as it represents a C. Variable cost. This is because the cost of electricity will vary depending on the level of usage, which is likely to fluctuate with the operational activities of the university development.

The money spent to date on the Old Fire Station Headquarters site feasibility study and legal advice should be included in the Economic Appraisal as a B. Fixed cost. These are costs that have already been incurred and will not change regardless of the scale of the project moving forward.

The cost of a stand-alone technology cabin with a separate contract for specialist call-out support, paid on an as-needed basis, should be included as a D. Semi-variable cost. The base cost of the cabin is fixed, but the call-out support costs will vary depending on the frequency of the need for specialist support.

The Highways Department’s upgrade of the access road to the Old Fire Station Headquarters site, even though it will not count against the Pittville project budget, should still be considered in the Economic Appraisal to understand the full economic impact of the project. However, since it does not impact the project budget directly, it could be argued that it is A. NOT included in the Economic Appraisal from the project’s budget perspective but might be acknowledged in a broader economic impact analysis.

The use of the Old Fire Station Headquarters site, which is owned by the Council and was to be sold

but will now be used for the new campus, represents an opportunity cost but not a direct financial cost to the project. Therefore, it might be A. NOT included in the Economic Appraisal as a direct cost but could be considered in terms of forgone revenue or alternative use value in a broader economic analysis.

The need to expand the car park at Pittville University if over 1,500 students attend represents a E. Step cost. This cost will not occur until a certain threshold (in this case, student numbers) is reached, at which point it will increase in a step-like manner.