2. Manufacturing Cost Estimating

2.1 Cost Estimates

• Cost estimating attempts to estimate to estimate the value put into a product by each operation.

• Cost estimates are based on historical records of expenses for equipment.

• Costs are made up of a variety of components,


• Estimated variables for a single product/unit. NOTE: yearly estimates are typically made by management.


• We can write equations for the simple relationships,


• We can select a profit using market conditions,


• We need to estimate the total time for the job using the process plan.


• We can then include time to find the various costs. There are many ways to do this: this is one possible way.


• Some costs must be specific to materials used. Depending upon suppliers, shipping, handling, etc. these costs will vary widely. If we use a fairly consistent supplier we can use,


• We can estimate indirect labor costs using an assumption that most labor types are fairly similar (this is not true but other book keeping problems may encourage this).


• For continuous-long running jobs (minimal setups) using the process plan time estimates we are already to estimate the direct labor costs.


• We can estimate direct material costs two ways using the process plan, the AMCE, and quotes from suppliers.


• Jobs may run in small batches and require setups and multiple steps on a machine. We can do a more detailed cost estimate based on operation steps (using section 5 in the AMCE).


• If operations at a machine contain multiple steps we can develop a more detailed estimate using the information in section 5 of the AMCE. To do this we need to break each operation down to specific steps. Detail is critical with this method.


• We can use a tabular format (based on a process plan) to calculate,


• Consider the example below,

******************** find a financial statement

**************************** find a simple part design

2.2 COGS (Cost of Goods Sold)

• This is a tax deduction for a business


2.3 Value Engineering

• We can compare the economic cost of a design feature to the economic value assigned it by the customer.


• This simple measure allows us to rate features in a part and identify candidates for redesign.

2.4 References

2.1 Ostwald, P.F., American Machinist Cost Estimator, McGraw-Hill, 1985.

2.2 Ullman, D.G., The Mechanical Design Process, McGraw-Hill, 1997.


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