Step 8 Estimate the machining time for each operations listed in the manufacturing process plan Step 9 Determine the direct labour cost Step 10 Determine the prime cost by adding direct expenses, direct material cost, and direct labour cost prime cost = direct expenses + direct material cost + direct labour cost Step 11 Estimate the factory overheads, which include all indirect expenditure incurred during production such as indirect material cost, indirect labour cost, depreciation and expenditure on maintenance of the plant, machinery, power, etc. Step 1 Study the cost estimation request thoroughly and understand it completely Step 2 Analyze the product and decide the requirements and specifications of the product Step 3 Prepare the list of all the parts of the product and their bill of Materials Step 4 Take make or buy decisions and prepare a separate list of parts to be purchased &manufactured Step 5 Estimate the materials cost for the parts to be manufactured in the plant Step 6 Determine the cost of the parts to be purchased from outside Step 7 Make a manufacturing process plan for the parts to be manufactured in the plant It can be estimated by referring the previous records This can not be charged directly All expenses other than direct cost are known as overhead cost or Indirect expenses, ex:- Administrative expenses, selling and distribution expenses, etc. required for production It considers their present prices, market trend and the number of times a particular tool can be used during its life time Labour cost = Estimated labour time needed to the product x Cost of the labour per hour ĭuring this stage, the estimator should consider the cost of inspection equipments, gauges and wages to the inspectors ĭuring this stage, includes the estimated cost and maintenance charges for the tools, jigs, fixtures, die etc. When the design completed, the drawing will be prepared by the draftsman Drafting cost = Estimated draft time x salary of the draftsman per unit time Ĭonsiderable time and money has to be spent on research and developmental work The estimated cost and time on it are decided by the judgement or the past experience įollowing steps involved Prepare the list of all materials required to manufacture the product Estimate the weight of all the materials expected (the allowance for the material wastage, spoilage and scrap are also added ) Estimated materials cost = Estimated weight of each part x Estimated future price Finally, the estimated cost of all the parts is added to get the total estimated material cost of the product įollowing steps involved Toestimate the labour cost, the estimator should have the knowledge of various operations, machines, sequence, tools & labour to be used. Overhead cost ĭesign cost of the product is estimated by ascertaining the expected time for the design of that product Estimated Design cost = Estimated design time x salary of the designer per unit time Design time can be estimate on the basis of similar products already designed or on the basis of good judgement of designer If design done by outside agency, the total amount paid – gives the cost of design To fix the selling price of the product To help the contractors to submit the accurate tenders To forecast the progress of production and cost To set the various Standards ĭesign cost Drafting cost R & D cost Material cost Labor cost Inspection cost Cost of tools, jigs, fixtures, etc. To establish the selling price of a product, so as to ensure reasonable profit to the company To determine the most economical process To make/buy decisions To evaluate the alternate designs To prepare production budget TO initiate the cost reduction in existing facilities The only accurate estimating can enable the leaders to make vital decisions such as manufacturing, selling policies Case1 If job is over estimated, The firm will not be able to compete with its competitors If the job is under estimated, The firm will face huge financial loss Important activity in engineering design and production It is forecasting the future cost Cost estimating & process planning are prominent activities in the manufacturing system It considers all the expenditures involved like engineering, administration, etc It requires high technical knowledge The purpose of cost estimating is to find the cost of the manufacturing operations and to assist in setting the price for the product Ĭost estimating may be defined as the process of determining the probable cost of the product before the start of manufacture
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