INTRODUCTION TO COST ESTIMATION
- 1. ME6005 PROCESS PLANNING AND COST ESTIMATION
- 2. • UNIT I INTRODUCTION TO PROCESS PLANNING • UNIT II PROCESS PLANNING ACTIVITIES • UNIT III INTRODUCTION TO COST ESTIMATION • UNIT IV PRODUCTION COST ESTIMATION • UNIT V MACHINING TIME CALCULATION
- 3. UNIT III INTRODUCTION TO COST ESTIMATION • Importance of costing and estimation • Methods of costing-elements of cost estimation • Types of estimates • Estimating procedure • Estimation labor cost, material cost • Allocation of over head charges • Calculation of depreciation cost
- 4. What is mean by cost estimation? • Estimation of the expected cost of producing a job • Executing a manufacturing order before the actual production is taken up • Predicting what new products will cost before they are made.
- 5. Definition Costing or cost accounting means classifying, recording and allocating the appropriate expenditure for determining the cost of production and achieved by keeping a continuous record of all the costs involved in manufacturing
- 6. REASONS FOR DOING ESTIMATES • Should the product be produced? • When a company designs a new product • To assist management in making an intelligent decision about producing the product.
- 7. General procedure • A cost estimate must be developed for jigs, fixtures, tools, dies and gauges. • Also, the cost of any capital equipment must be entered into the estimate. These figures are usually supplied through quotation by vendors. • An estimate of this nature will include a vast amount of details, because if management approves the project, the estimate now becomes the budget.
- 8. OBJECTIVES OR PURPOSE OF ESTIMATING (i) To establish the selling price of a product. (ii) To ascertain whether a proposed product can be manufactured and marketed profitably. (iii) To determine how much must be invested in equipment. (iv) To find whether parts or assemblies can be more cheaply fabricated or purchased from outside (make or buy decision). (v) To determine the most economical process, tooling or material for making a product.
- 9. FUNCTIONS OF ESTIMATING (i) To calculate the cost of new material needed to manufacture a product. (ii) To find the cost of parts to be purchased from outside vendors. (iii) To find the cost of equipment, machinery, tools, jigs and fixtures etc. required to be purchased to make the product. (iv) To calculate the direct and indirect labour cost associated with the manufacture of the product, based upon work study. (v) To calculate various overhead charges associated with the product.
- 10. Cont.… (vi) To decide about the profit to be charged, taking into consideration other manufacturers of same product in the market. (vii) To calculate the selling price of the product. (viii) To maintain records of previous estimating activities of the company for future references. (ix) To decide the most economical method of making the product. (x) To submit cost estimates with the competent authority for further action.
- 11. COMPONENTS OF A COST ESTIMATE OR JOB ESTIMATE 1. Cost of design. 2. Cost of drafting. 3. Cost of research and development. 4. Cost of raw materials. 5. Cost of labour. 6. Cost of inspection 7. Cost of tools, jigs and fixtures. 8. Overhead cost
- 12. 1. Cost of Design • The cost of design of a component or product is estimated by ascertaining the expected time for the design of that component • The estimate design time multiplied by the salary of designer per unit time gives the estimated cost of design • If the design of the component is done by some outside agency, the total amount paid to outside agency gives the cost of design.
- 13. 2. Cost of Drafting • Once the design of the component is complete, its drawings have to be prepared by draftsman • The expected time to be spent in drawing or drafting is estimated and is then multiplied by the standard drafting rate or by the salary of the draftsman per unit time to get estimated cost of drafting
- 14. 3. Cost of Research and Development Work • Before taking up the manufacturing of actual components/parts considerable time and money has to be spent on research and development. • The research may be theoretical, experimental or developmental research. • The cost of R and D can be estimated by considering various items of expenditure incurred during R and D work
- 15. 4. Cost of Raw Material (i) A list of all the materials used in the manufacture of the product is made which includes the direct as well as indirect materials. (ii) The quantity (weight or volume) of all the material expected to be used in the manufacture of the product is estimated. The allowance for material wastage, spoilage and scarp are also added for each component/part. (iii) Cost of each material is estimated by multiplying the estimated quantity of each material with its estimated future price. The estimate of future price of a material is made keeping in view of present prices and general trends and variations. (iv) Estimated cost of all the materials is added to get the overall estimated material cost.
- 16. 5. Cost of Labour • The cost of labour involved in the manufacture of a product is estimated by estimating the labour time needed to manufacture the product and multiplying it by cost of labour per hour. • In order to estimate the labour time expected to be spent on a job, one must have thorough knowledge of the various operations to be performed, machines to be used, sequence of operations, tools to be used and labour rates
- 17. 6. Cost of Inspection • A product being manufactured is inspected at various stages during its manufacture. • It may be inspection of raw material or in- process inspection or inspection of finished goods.
- 18. 7. Cost and Maintenance Charges of Tools, Jigs and Fixtures • The cost of tools, jigs, fixtures etc., is estimated considering their present prices, market trend and the number of times a particular tool can be used during its life-time. • The estimated cost divided by the number of jobs it can make, gives the tool cost per unit produced
- 19. 8. Overhead Costs • Overhead or indirect costs are those which are not incurred specifically for any one order or product and these can not be charged directly to a specific order or product • The overhead costs may be estimated by referring to the records of overhead costs in similar items produced in past
- 20. Data requirements for cost estimation • General design specifications • Assembly or layout drawings • Details drawings and bill of materials for the product • Test and inspection procedures and equipment's • Machine tool and equipment requirement • Transportation requirements • Standard time data Material release data, subcontractors cost etc.
- 21. Data sources 1.General design specifications-product engineering and sales department 2.Quantity and rate of productions-request for estimate or sales department 3. Assembly or layout drawing- product engineering or sales or customer 4.Bill of materials-product engineering or sales department 5.Test inspection –quality control department 6.Machine tool requirement – manufacturing or vendors of materials 7.Packaging or transportation- sales or shippping departmeent