First, they change the amount of an activity, i.e., an activity's TO-BE content per output may increase through consolidation of other activities or it may decrease through reduction or elimination. Second, they change the consumption or unit cost of an input or supporting mechanism, e.g., system x is replaced by the improved system y . The latter case involves an activity's factor of production.
Factors of production are costs of doing the activity, whether the cost is fixed or variable.
Many times the factors of production are measured using surrogates, e.g., yearly charges for system x . The following assumptions were used to determine the cost reduction schedule in Table K-1. The following assumptions were used to determine the cost reduction schedule in Table K-2.