Preparing Cost Estimate for Manufactured Products.ppt-Aragaw-edited.pdf

Preparing Cost Estimate
for Manufactured
Products
Metal Engineering Production
Management Level IV
By: Aragaw G.(Msc)
By: Aragaw G.(MSc.) 2017 1

MODULE CONTENT
 LO1. Gathering Cost Information
 LO2. Identify and Calculate Labor Cost
 LO3. Identify and establish physical resource requirements
 LO4. Develop Estimated Product/Project Costs
 LO5. Verify Cost Estimate

LO1. Gathering Cost Information
INTRODUCTION TO COST ESTIMATION
 Cost estimation may be defined as the process of forecasting the
expenses that must be incurred to manufacture a product.
 These expenses take into consideration all expenditures involved in
design and manufacturing with all the related service facilities such as
pattern making, tool making as well as portion of the general
administrative and selling costs.
 Cost estimates are the joint product of the engineer and the cost
accountant.

Cont’d
 Estimating is the calculation of the costs which are
expected to be incurred in manufacturing a component in
advance before the component is actually manufactured.
 Costing/cost Accounting may be defined as a system of
accounts which systematically and accurately records every
expenditure in order to determine the cost of a product
after knowing the different expenses incurred in various
department.

REASONS FOR DOING ESTIMATES
 Cost estimates are developed for a variety of different reasons. The
most important reasons are shown below.
1. Cost control
2. Make-or-buy decision
3. Determine selling price
4. Check vendor quotes (purchase analysis)
1. Cost control
 A job shop (contract shop) will use a cost estimate for cost control
purposes because lot of sizes are small and job shops seldom/rarely/
estimate work standards for what they produce.
 This use of an estimate for this purpose is different from temporary
standards in that it uses the “meet or beat” philosophy.

Cont’d
2. Make-or-buy decision
 When a company sets out to produce a new product, many
components in the bill of materials are subject to a make-
or-buy decision.
 A cost estimate is developed for comparison purposes.
 There are usually considerations aside from piece part cost.
These may include tooling cost, vendor quality, and vendor
delivery.

Cont’d
3. Determine selling price
 An estimate is used to determine selling price. The estimate is
always a reflection of actual cost.
 In most organizations the marketing department has the
responsibility of establishing a selling price, which can be
substantially different from the cost estimate.
 There are many reasons for this. For example, a contract shop might
be willing to sell the first order at something less than the estimate
to develop a new customer.

Cont’d
4. Check vendor/Seller quotes (purchase analysis)
 An estimating function is often established for the sole
purpose of checking vendor quotations on outsourced
work.
 One automobile company has an entire department of cost
estimators devoted to this task.

Importance of Estimating
 Estimating is of great importance to a concern because it enables the
factory owner to decide about the manufacturing and selling policies.
 It is obvious that too high estimates will not get jobs to the firm by
quoting higher rates according to over estimate whereas under estimating
will put the owner to a loss and will lead the concern to utter failure. So,
estimation should be carried out accurately.
 The persons preparing estimates should be highly qualified and
experienced.
 They should be chosen from shops or should be first trained in all the
shop methods and their estimates preparation.

OBJECTIVES OR PURPOSE OF ESTIMATING
 The main purpose or objective of estimating are:
 To establish the selling price of a product.
 To ascertain whether a proposed product can be manufactured and marketed
profitably.
 To determine how much must be invested in equipment.
 To find whether parts or assemblies can be make or buy decision.
 To determine the most economical process, tooling or material for making a
product.
 To prepare production budget.
 To evaluate alternate designs of a product.
 To set a standard estimate of costs.
 To control actual operating costs by incorporating these estimates into the general
plan of cost accounting. By: Aragaw G.(MSc.) 2017 10

DIFFERENCE BETWEEN COST
ESTIMATING AND COST ACCOUNTING
By: Aragaw G.(MSc.) 2017
11

Cont’d

METHODS OF COSTING
1. Process costing.
2. Job costing.
3. Batch costing.
4. Hybrid costing systems.
1. Job costing.
2. Out put costing.
3. Operating costing.
4. Process costing.
 Different scholars classify costing methods in different
perspectives:

Cont’d
 This method is employed when a standard product is being made
which involves a number of distinct processes performed in a
definite sequence.
 In oil refining, chemical manufacture, paper making, flour milling,
and cement manufacturing etc., this method is used.
 The total time spent and materials used on each process, as well as
services such as power, light and heating are all charged. For this
purpose cost sheet may be employed.
1. Process costing.

Cont’d
15

Cont’d
2. Job costing or order costing
 Job costing is concerned with finding the cost of each individual job or contract.
Examples are to be found in general (job order) engineering industries, ship
building, building contracts, etc.
 The main features of the system is that each job has to be planned and costed
separately.
 The process of determining in advance what a job or order will cost is known as
estimating.
 It involves consideration of the following factors for each job/order:
1. Materials requirements and prices to arrive at the direct material cost.
2. Labour hours and rates to determine labour costs.
3. Overhead costs.
4. Percentage added to total cost to cover profit.
 A record of above costs per unit time is kept in separate cost sheets. 16

Cont’d
3. Batch costing.
 Batch costing is a form of job costing. Instead of costing each
component separately, each batch of components are taken together
and treated as a job.
 Besides maintaining job cost sheets it may also be necessary to keep
summary sheets on which the cost of each component can be
transferred and the cost of the finished product can be calculated.
 This applies in general engineering where many hundreds of
components may go towards making the finished machine or other
product.

Cont’d
4. Hybrid costing systems.
 Many costing systems do not fall nearly into the category of
either job costing or process costing. Often systems use some
features of both main costing systems.
 This system of costing can use by integrating the advantages of
the above three methods.
 In big industries like steel industry or automobile industry each
department is producing independently one or more
components so that Departmental costing method can be used

DIFFERENT APPROACHES TO COST ESTIMATION

COMPONENTS OF A COST ESTIMATE OR
JOB ESTIMATE
 The total estimated cost of a product consists of the following
cost components :
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.
 But to make it more conventional let us see elements of cost in the following
manner:

ELEMENTS OF COST
 The total cost is made up of three main elements:

Cont’d
1. MATERIAL COST
 Material cost consists of the cost of materials which are used in the
manufacture of product. It is divided into the following:
I. Direct Material Cost
 It is the cost of those materials which are directly used for the manufacture of
the product and become a part of the finished product.
II. Indirect Material Cost
 In addition to direct materials a number of other materials are necessary to
help in the conversion of direct materials into final shape.
 The indirect materials include oils, general tools, greases, sand papers,
coolants, cotton waste etc.

Cont’d
2. LABOUR COST
 It is the expenditure made on the salaries, wages, overtime, bonuses, etc. of the
employees of the enterprise. It can be classified as:
I. Direct Labour Cost
 Direct labourer is one who actually works and processes the materials to convert it
into the final shape.
 Examples of the direct labour are the workers operating lathes, milling machines
or welders, or assemblers in assembly shop.
II. Indirect Labour Cost
 Indirect labourer is one who is not directly employed in the manufacturing of the
product but his services are used in some indirect manner.
 The indirect labour includes supervisors, foreman, storekeeper, gatekeeper,
maintenance, staff, crane driver etc.
 The cost associated with indirect labour is called indirect labour cost.

Cont’d
3. EXPENSES/OVERHEADS
 Apart from material and labour cost in each factory there are several other
expenditures such as cost of special layouts, designs, etc. hire of special tools
and equipments; depreciation charges of plants and factory building; building
rent; cost of transportation, salaries and commissions to salesman etc.
I. Direct Expenses
 Direct expenses also known as chargeable expenses include any expenditure
other than direct material or direct labour incurred on a specific cost unit.
These are the expenses which can be charged directly to a particular job and
are done for that specific job only.
 For example, hire of special tools and equipment, cost of special jigs and
fixtures or some special patterns and its maintenance cost, costs of layouts,
designs and drawings or experimental work on a particular job etc.

Cont’d
II. Indirect Expenses
 These are known as overhead charges, burden or on cost. All the
expenses over and above prime cost are indirect expenses. Overhead
is the sum of indirect labour cost, indirect material cost and other
expenses including service which cannot be conveniently charged to
specific cost unit. These can be further classified as:
1. Production expenses/Factory expenses.
2. Administrative expenses.
3. Selling expenses.
4. Distribution expenses.

SUMMARY COST OF PRODUCT (LADDER OF COST)
 The elements of cost can be combined to give following types of
cost:
1. Prime cost: It consists of direct material cost, direct labour cost
and direct expenses.
Prime cost = Direct material cost + Direct labour cost + Direct
expenses.
 Prime cost is also called as direct cost.
2. Factory cost: It consists of prime cost and factory expenses.
Factory cost = prime cost + factory expenses.
 Factory cost is also named as works cost.
3. Office cost: It consists of factory cost and administrative
expenses.
Office cost = Factory cost + Administrative expenses
 It is also named as manufacturing cost (or) cost of
production.
4. Total cost: It includes manufacturing cost and selling and
distribution expenses.
Total cost = Manufacturing cost + selling and distribution
expenses.
5. Selling price = Total/Ultimate cost + Profit
26

Direct and Indirect Cost Estimates
Direct cost examples
• Physical assets
• Maintenance and operating
costs (M&O)
• Materials
• Direct human labor (costs
and benefits)
• Scrapped and reworked
product
• Direct supervision of
personnel
Indirect cost examples
• Utilities
• IT systems and networks
• Purchasing
• Management
• Taxes
• Legal functions
• Warranty and guarantees
• Quality assurance
• Accounting functions
• Marketing and publicity

Sources of Cost Information
 Whenever the nature of the project is, the economic aspects must be
investigated.
 The commercial research or project analysis can be resolved in to the
following constituent studies.
1. Production Cost: Before attempting to predetermine cost, it is
logical procedure to select an appropriate scale of operation and then
to visualize the complete plant and organization required for the
desired need.
2. Market Surveys: these are essential in planning production and
should be made prior to any substantial expenditure for
experimental work.

Cont’d
3. Price Study: The price history of a product is of interest
when compared with projected cost, as it indicates the
probable maximum margin.
4. Capital Investment: It is often necessary to estimate the
capital requirements of a process that has never been
operated commercially.
5. Return on investment: After estimating the above, the
rate of return on the investment is calculated as below:
  %
100
cos
)
(
Re 



investment
capital
sales
of
volume
t
price
unit
PRR
turn
of
Rate
Percentage

Sources of errors in estimating
 There may be some errors in estimating. These errors are of the following two types:
 Unavoidable errors and Avoidable errors
 Unavoidable errors: are those which can not be avoided. Some of the examples are:
 Machinery breakdown
 Power failure
 Accidents
 Drop in efficiency of workers
 Drop in efficiency of machines and tools
 Strikes
 Avoidable errors: some of the errors can be avoided by the estimator while preparing the
estimates. These errors may occur due to less experience, carelessness and hurry in preparing the
estimates
 Poor analysis
 Omission of some factors
 Not considering up-to-date data
 Repetition of some factors By: Aragaw G.(MSc.) 2017 31

EXAMPLES
1. A certain pieces of work is produced by affirm in batches
of 100. the direct material cost for 100 piece of work is $160
and the direct labour cost is $200. factory on cost is 35% of
the total material and labour cost(prime cost). Overhead
charges are 20% of the factory cost. Calculate:-
A) Prime cost (PC)
B) Factory cost (FC)
C) Total production cost (TC)
D) Selling price if the management want to make a profit
10% of the gross cost.

CONT,D …………
2. Calculate the selling price per unit from the following data
if the number of part to be produced is 200 pieces :
 Direct material cost = $8,000
 Direct labour cost = 60% of DMC
 Direct expenses = 5% of DLC
 Factory expenses = 120% of DLC
 Administrative expenses = 80% of DLC
 Sales and distribution expenses = 10% of DLC
 Profit = 8% of total cost

CONT,D …………
3. Market price of a CNC lathe is $50,000 and
discount is 20% of market price. Here factory
cost is 4 times selling expenses and 1:4:2 is
ratio of material, labour and overhead charges.
Material cost is $4,000. what is the profit
value?

CONT,D …………
4. A factory is producing 1000 bolt and nuts Per
hour on a machine. Its material cost is $375,
labour cost $245 and the direct expense is
$80. the factory on cost is 150% of the labour
cost and office on cost is 30% of the total
factory cost. If the selling price of each bolt
and nut is $1.30, calculate whether the
management is going in loss or gain and by
what amount? By: Aragaw G.(MSc.) 2017 35

LO2. Identify and Calculate
Labor Cost

LO2. Identify and Calculate Labor Cost
Labour Cost:
 It is the expenditure made on the salaries, wages, overtime, bonuses, etc. of the
employees of the enterprise.
 It can be classified as Direct and indirect labour cost
 Estimation of labour cost is a complicated problem which requires sufficient
experience and at the same time it plays vital role while estimating the local cost of a
product.
 An estimator must be well conversant with the various operations carried out during
the production process. Thus in order to estimate labour cost, he should have a
thorough knowledge of the followings.
 Different machines to be utilized
 Different operations to be performed
 Wage rate of different types of labour employed
 Machine set up and operation times
 Different time allowances provided. By: Aragaw G.(MSc.) 2017
37

Cont’d
 To calculate the labor cost, we must know the operation time and the
rate per hour of different operations.
 To calculate the time required for a particular job the following things
should be taken in to account
 A) Set up time
 B) Operation time/cycle or run time it is the time necessary to
perform all the elements of the operations like:
i) Handling time and ii) Machining time
 Miscellaneous allowances an operator cannot work continuously without rest for
8hrs because he will get fatigue. Due to this the efficiency may come down. Similarly
he also needs time for tool sharpening, checking measurements etc., all these
allowances are called as miscellaneous allowances.
 Usually these allowances will be about 15% of the total time.

Methods of Remuneration/Payment
 The following methods of remuneration are common
in most industries:
1. Time-based method of payment
2. Output-based method of payment and
3. A hybrid of the above two methods.

Cont’d
1. Time-based method of payment
 The payment of the worker is a function of the amount of time
that he has spent in the period in question. The time could be
measured in hours, days or months.
A. Hourly-Based Method;
 Wages = No. of hours worked x Rate per hour
B. Day Rate;
 Wages = No. of days worked x Rate per day.
C. Monthly Rate;
 The rate is fixed per month, or alternatively an amount is fixed per annum but
payable monthly. This is more popular in paying office, that is, non-production,
workers.

Estimating Time Requirements
Machining Time
 Time (t) taken to turn length (L) in meter of stock on lathe is;
 Where, f = Feed in mm/rev. p= No. of passes
 Therefore, the cutting speed is calculated by
 Where, V= Cutting speed, D= Diameter of work in lathe and diameter of
cutter in milling N= Revolution per minute
(min)
p
N
f
L
t 


min
/
1000
m
N
D
V



Cont’d
2. Output-Based Method
 Under these methods, wages paid are a function of the number of units
of the product produced irrespective of the amount of time spent to
produce them.
This is common in certain industries like block making.
 Output-based method may be categorized as:
(a) Straight Piece Rate: a rate per unit of production is specified
 Wages = Number of good units produced x Rate
(b) Differential Piece Rate: rate per unit at different levels of production.
For example: 1 – 1000 units $5 per unit
1001 – 1500 units $7 per unit
1501 – 2000 units $10 per unit

Examples
 A Worker is employed for the manufacturing of M.S
pins at a piece rate of 1.5 birr. He has to prepare 40
pins in 8 hours of work, but he prepare 55 pins in 8
hour. Calculate his total daily earning by piece rate
system. Also calculate extra earning if 30% of piece
rate can be added for extra pieces.

LO3. Identify and establish physical
resource requirements

LO3. Identify and establish physical resource
requirements
 For manufacturing cost estimation physical resource requirement
basically related to quantity and cost of material required to produce a
component.
ESTIMATION OF MATERIAL COST
 Material cost consists Direct and indirect material cost
 To calculate the material cost of the product the first step is to study
drawing of the product and split it into simple standard geometrical
shapes and to find the volume of the material in the product and then
to find the weight.
 The weight of the material = volume multiplied by density of the
metal used in the product. 45

Cont’d
 The exact procedure to find the material cost is like this:
1. Study the drawing carefully and break up the component into simple
geometrical shapes. (Cubes, prisms, cylinders, etc.)
2. Add the necessary machining allowances on all sides which are to be
machined.
3. Determine the volume of each part by applying the formulae of
mensuration.
4. Add the volumes of all the simple components to get total volume of the
product.
5. Multiply the total volume of the product by the density of the material to
get the weight of the material.
6. Find out the cost of the material by multiplying the cost per unit weight
to the total weight of the material

Cont’d
Mensuration in material cost Estimation
 Mensuration is the science which deals with the calculation of length
of lines, areas of surfaces and volumes of solids by means of
mathematical rules and formulae.
 The general formulae for calculating the volume of a simple solid
having a uniform cross sectional area throughout in the direction
normal to the section considered, is to find the product of the cross-
sectional area and the length of the solid in the direction normal to
the section considered.
 To calculate the volume of a complex solid, it should be divided into
a number of sample geometric solids. The volume of all these parts
are calculated separately and then added together to get the total
volume. By: Aragaw G.(MSc.) 2017 47

Volumes and surface areas of solids

Cont’d

Examples
1. MGMBPTC machine shop need to
produce the component given in
the fig. below. If you are assigned
as a shop manager, calculate the
weight and material cost of the
component consider the material
is brass, density 8.4 g/cm3 and
material cost per Kg is $20.

A
B
C
D

Examples
2. Estimate the weight and material cost of lathe dead center
given below, consider the material is C.I, density
7.787g/cm3 and material cost per Kg is $11.45.

Cont’d
3. Find the weight and
material cost of C.I
bracket shown in the fig.
Assume the density of
C.I 7.5g/cm3 material
cost per Kg is $20 and all
dimensions are in cm.

LO4. Develop Estimated
Product/Project Costs

LO4. Develop Estimated Product/Project
Costs
 In this rapid developing and competitive age it is necessary for a
factory that the advance information about the cost of a job or a
manufacturing order to be put through should be available before
taking up actual production.
 Estimating which is predetermination of cost is mainly concerted
with factory owner. It helps him to decide about the manufacturing
the selling prices.
 Estimation is calculation of cost when are expected to be incurred in
manufacturing a component in advance before the component is
actually manufactured.

ESTIMATION OF DIFFERENT TYPES OF
JOBS
CONTENTS
1. Estimation of Forging Shop
2. Estimation of Welding Shop
3. Estimation of Foundry Shop
4. Estimation of Machining Shop

1. Cost Estimation of Forging Shop
Losses in Forging
 It is well known that some metal is always lost in the different
operations of forging and this lost metal must be added to the
net weight before calculating the material cost.
 The different losses to be considered are:
I. Scale loss.
II. Flash loss.
III. Tong hold loss.
IV. Sprue loss.
V. Shear loss. By: Aragaw G.(MSc.) 2017 61

Cont’d
1. Scale loss
 This is the material lost because of the surface oxidation in heating and
forging the piece. The iron oxide film is known as scale and it falls from the
surface of the metal on being beaten up by the hammer.
 For forgings under 5 kg loss is 7.5 % of the net weight, and for forgings from 5
to 12.5 kg and over an addition of 6 % and
 Generally 5% of the net weight is necessary for scale loss.
2. Flash loss
 There is a certain quantity of metal which comes between the flat surfaces of
the two dies after the die cavity has been filled in.
 For finding the flash loss, the circumference is determined which multiplied
by cross-sectional area of flash will give the volume of the flash. The volume
multiplied by material density gives the flash loss.
 Generally, it is taken as 3 mm thick and 20 mm wide all round the
circumference. By: Aragaw G.(MSc.) 2017 62

Cont’d
3. Tong hold loss
 This is the loss of material due to a projection at one end of the forging
to be used for holding it with a pair of tongs and turning it round to give
the required cross section in drop forging.
 About 1.25 cm and 2.5 cm of the size of the bar is used for tong hold.
 For example, the tong hold loss for a bar of 2 cm diameter will be
4. Sprue loss
 The connection between the forging and stronghold is called the
sprue or runner. The material loss due to this portion of the metal
used as a contact is called sprue loss.
 The sprue loss is generally 7.5 per cent of the net weight

Cont’d
5. Shear loss
 In forging, the long bars or billets are cut into required length by
means of a sawing machine.
 The material consumed in the form of saw-dust or pieces of
smaller dimensions left as defective pieces is called shear loss.
 This is usually taken as 5% of the net weight.
 N.B: From above we see that nearly 15 to 20% of the net weight of
metal is lost during forging. And as already said these losses
must be added to the net weight to get the gross weight of the
material.

Forging Cost
 The cost of a forged component consists of following elements:
1. Cost of direct materials.
2. Cost of direct labour.
3. Direct expenses such as due to cost of die and cost of press.
4. Overheads.
1. Cost of direct materials.
 Net weight = Volume of forging × Density of metal.
 Gross weight = Net weight + Material loss in the process.
 The greatest section of forging gives the diameter of stock to be used and
 The cost of direct metal is calculated by multiplying the gross weight by price
of the raw material
 Direct material cost = Gross weight × Price/kg. By: Aragaw G.(MSc.) 2017
65

Examples
1. Calculate the net weight and gross weight for the component shown in
Fig. Density of material used is 7.86 gm/cc. Also calculate :
I. Length of 14 mm dia bar required to forge one component.
II. Cost of forging/piece if :
 Material cost = $ 80 per kg
 Labour cost = $ 5 per piece
 Overheads = 150 percent of labour cost.

Cont’d
2. Calculate the require length of stock and cost of forging a crank
shaft as shown in Fig. The forging is to be made out of a bar stock
of 50 mm and following data is available :
I. Material price = $ 80 per kg
II. Direct labour charges = $ 23 per piece
III. Overhead charges = 150 percent of material cost
IV. Density of material = 7.5 gms/cc
V. Losses = 28 percent of net weight

2. Cost Estimation of Welding Shop
Welding Cost
 The cost of welding depends on the welding process used, the type of joint,
materials, and labour employed in making and inspecting the joint.
 Cost procedure
 In estimation welding cost of a job, the different items which are to the taken into account are
material, labour and tooling cost.
 The labour cost is subdivided into following groups:(i) Preparation, (ii) Set-up, (iii) Material
deposition, (iv) Post welding operation, (v) Finishing
Estimation of Cost in Welding
 The total cost of welding consists of the following elements :
1. Direct material cost.
2. Direct labour cost.
3. Direct other expenses.
4. Overheads.

Cont’d
Direct Other Expenses
The direct other expenses include the cost of power consumed, cost of
fixtures used for a particular job etc.
Cost of power : The cost of power consumed in arc welding can be
calculated from the following formula :
Where V = Voltage
 A = Current in Amperes
 t = Welding time in minutes
 E = Efficiency of the welding machine
= 0.6 for welding transformer
= 0.25 for welding generator
 r = Ratio of operating time to connecting time taken
by the operator
 C = Cost of electricity per kWh i.e., Unit.
Or
 power consumed in KW
 Power cost = power consumed X rate
per hour X welding time(in hour)

Cont’d
Important data's for welding cost
 Leftward welding : In this method, welding is started
from right hand side of the joint and proceeds towards
left.
 This method is used for welding plates up to 5 mm
thick.
 No edge preparation is required in case of the plates
of thickness up to 3 mm.
 Rightward welding : This method is adopted for
welding thicker plates.
 Welding proceeds from left to right.
 The flame is directed towards the deposited
metal and rate of cooling is very slow.

Cont’d

Examples
1. Calculate the cost of welding two plates 200 mm × 100 mm × 8 mm thick to
obtain a piece 200 mm × 100 mm × 8 mm approximately using rightward welding
technique Fig. The following data is available :
 Cost of filler material = Rs. 60 per kg
 Cost of oxygen = Rs. 700 per 100 cu meters
 Cost of acetylene = Rs. 700 per 100 cu meters
 Consumption of oxygen = 0.70 cu m/hr
 Consumption of acetylene = 0.70 cu m/hr
 Diameter of filler rod = 4 mm
 Density of filler material = 7.2 gms/cc
 Filler rod used per meter of weld = 340 cms
 Speed of welding = 2.4 meter/hr
 Labour is paid Rs. 20 per hour and overheads may be taken as 100 percent of
labour cost

Cont’d
2. Work out the welding cost for a cylindrical boiler drum 2.5m × 1 m diameter
which is to be made from 15 mm thick m.s plates. Both the ends are closed by arc
welding of circular plates to the drum. Cylindrical portion is welded along the
longitudinal seam and welding is done both in inner and outer sides. Assume the
following data:
i. Rate of welding = 2 m/hour on inner side and 2.5 m/hour on outer side
ii. Length of electrodes required = 1.5 m/ meter of weld length
iii. Cost of electrode = $0.60 per meter
iv. Power consumption = 4 kWh/meter of weld
v. Power charges = $Rs. 3/kWh
vi. Labour charges = $40/hour
vii. Other overheads = 200 percent of prime cost
viii. Discarded electrodes = 5 percent
ix. Fatigue and setting up time = 6 percent of welding time.

3. Cost Estimation of Foundry Shop
COST ESTIMATION IN FOUNDRY SHOP
 Foundry is a metal casting process in which the metal is melted and poured
into the moulds to get the components in desired shape and size.
 Castings are obtained from a foundry shop.
 Generally a foundry shop has the following sections :
1. Pattern Making Section
2. Sand-mixing Section
3. Core-making Section
4. Mould Making Section
5. Melting Section
6. Fettling Section
7. Inspection Section

Cont’d
I. Estimation of Pattern Cost
 The labour cost for the work is more difficult to determine,
since the process in values a lot of manual work.
 Experience tells us that a good pattern-maker, working
entirely manually, can finish the work on 0.025 m3 of wood
in 8 hours.
 Other charges are usually taken in proportion to either the
material cost or the labour cost.

Cont’d
II. Foundry Losses
 Losses influence strongly the economies of production of
castings.
 Losses occur mainly during melting because of oxidation
or volatilization of alloying elements
 Furnace type and design also affect melting losses.
 In the melting of steel, cupola converter practice produces
highest losses of the order of 12.5% whereas they are only
3 to 5% in electric arc furnace and about 1% in high
frequency induction heating furnace.

Cont’d
III. Steps for Finding Casting Cost
1. Calculate the volume of the casting from the past drawing, as
explained earlier.
2. Multiply the volume by the density of the part material in order
to arrive at net weight of the casting.
3. Calculate the weight of metal lost in oxidation in the furnace and
as sprues, gates, risers etc. This metal loss is roughly 10% of the
net weight of the casting.
4. Calculate the weight of foundry process scrap.
5. Add (2), (3) and (4) above to get total weight.
6. Calculate cost of metal by multiplying the total weight with the
cost per unit weight of the metal.

Cont’d
7. Calculate process scrap return value and deduct it from the cost of
metal in order to arrive at Net direct material cost.
8. Calculate indirect material cost by estimating the amount of coke,
flux, etc., required to melt and cleanse the molten metal for casting.
9. Calculate direct and indirect labour costs.
 (a) Cost of making moulds.
 (b) Cost of making and baking cores.
 (c) Cost of firing the furnace
 (d) Cost of melting metal.
 (e) Cost of pouring molten metal into the moulds.
 (f) Cost of removing solidified castings from the moulds.
 (g) Cost of fettling and finishing of castings.
 (h) Cost of heat-treatment, if any.
10. Cost of inspection.

Cont’d
 ESTIMATION OF COST OF CASTINGS
 The total cost of manufacturing a component consists of
following elements :
1. Material cost.
2. Labour cost.
3. Direct other expenses.
4. Overhead expenses.

Examples
1. Calculate the total cost of CI (Cast Iron) cap shown in the Fig. from the following
data :
 Cost of molten iron at cupola spout = $ 30 per kg
 Process scrap = 17 percent of net wt. of casting
 Process scrap return value = $ 5 per kg
 Administrative overhead charges = $2 per kg of metal poured.
 Density of material used = 7.2 gms/cc
 Other expenditures are :

Examples
2. A cast iron component is to be manufactured as per Fig. below. Estimate the
selling price per piece from the following data :
 Density of material = 7.2 gms/cc
 Cost of molten metal at cupola spout = Rs. 20 per kg
 Process scrap = 20 percent of net weight
 Scrap return value = Rs. 6 per kg
 Administrative overheads = Rs. 30 per hour
 Sales overheads = 20 percent of factory cost
 Profit = 20 percent of factory cost
 Other expenditures are :

Cont’d
 The component shown is obtained after machining the casting. The pattern
which costs Rs. 5,000 can produce 1,000 pieces before being scrapped. The
machining allowance is to be taken as 2 mm on each side.

4. Cost Estimation of Machining Shop
I. Introduction
 In general all components or products manufactured in the workshop, required one or
more machining operations to be done on them. Hence, the products have to travel
through the machine shop to attain their final shape and size.
 The machining operations necessary for a job may be of different types, such as turning,
shaping, planning, drilling, milling, boring and grinding.
 In estimating the time requires to perform an operation on a work piece by any machine,
the following factors must be considered.
1. Set up time.
2. Operation/Machining time.
3. Handling time
4. Tear down time.
5. Personal allowance.
6. Fatigue allowance.
7. Checking allowance.
8. Miscellaneous allowance. By: Aragaw G.(MSc.) 2017 83

Cont’d
II. ESTIMATION OF MACHINING TIME
 Estimation of machining time means calculating the time required
to complete the operations to make the components as per drawing.
 Machining time is the time for which the machine works on the
component. The basic formula used for determining the machining
time is :
OR

Why Machine Time Calculation is Import?
 To find the manufacturing cost of a particular job which
requires one or more machining operations, the calculation
of machining time is important.
 After determining the total time for machining, and
knowing the machining cost per unit time, the total cost of
machining can be worked out.
 Machining time is calculated by applying certain basic
formula, tables of variables and constants.
Cont’d

 Before we take up the estimation of machining time for various
operations, the terms used in cutting time formula are defined, in
general, as follows :
1. Length of cut : It is the distance travelled by the tool to machine the
work piece and is calculated as follows :
Length of cut = L = Approach length + Length of work piece to be
machined + Over travel
86
Cont’d
 Approach is the distance a tool travels, from the
time it touches the work piece until it is cutting to
full depth.
 Over travel is the distance the tool is fed while it is
not cutting. It is the distance over which the tool
idles before it enters and after it leaves the cut.
These terms are explained in the Fig. below for a
cutting operation on lathe.

Cont’d
2. Feed : Feed is the distance that a tool travels along the work
or the work travels w.r.t. the tool for each revolution of the
work-piece or cutter.
3. Depth of cut : It is the difference between unfinished
dimension and finished dimension of the job.
Doc = (D-d)/2
4. Cutting speed :. where V= Surface cutting speed in m/s
4. D = Diameter of the job in mm
5. N = r.p.m. of machine/job.

CALCULATION OF MACHINING TIME FOR
DIFFERENT LATHE OPERATIONS
1. Turning
Machining time(T)
 In case it is not possible to obtain the required dimensions in single cut, more
than one cut may be required.
 where
 N = r.p.m. of job
 V = cutting speed in meters/minute
 D = Diameter of the stock to be turned (in mm)
 f = Feed per revolution (in mm)
 L = Length of stock to be turned (in mm)
 T = Time required for turning (in minutes)

 The r.p.m.(N) is determined by using the mean diameter of the job.
 There for machining time(T) can be:
 where P = Number of cuts (passes) required.
 If over travel and approach are also to be taken into account
where A = Approach length
O = Over travel
Cont’d

2. Facing : Facing is the process of removing material from the ends
of the job by moving the tool perpendicular to the axis of the job.
Time taken for facing is calculated in the same way as for turning
but here
 Other turning operations: For turning operation like chamfering,
knurling, forming, Boring etc., the machining time formula is the
same.
Cont’d

 Machining Time Calculation for Drilling Lathe
3. Threading : Threads can be cut on lathe with the help of a single point cutting
tool or on a turret lathe with the help of a die head. The time for cutting
threads is calculated as follows :
Cont’d

ESTIMATION OF MILLING TIME
 Milling machine is a very versatile machine. The milling machine employs a
multipoint tool, called milling cutter, for machining. The various operations done on
a milling machine include facing, forming or profile machining, slotting, key way
cutting, etc.
 In milling machine, the formula to calculate machining time is :
 In case of milling cutters :
 Feed per revolution = Feed per tooth × number of teeth on cutter
 Total table travel = Length of job + added table travel
 The added table travel = Cutter approach + over travel

 The added table travel will depend upon the type of milling operation.
 (i) For face milling : In a face milling operation, refer Fig. 5.19, when the
milling cutter has traversed the length of face, some portion of the face is yet to
be milled as shown by shaded area.
 In order to complete milling an additional distance must be travelled by the
table, which is given by :
where D = cutter dia
 W = Width of work piece
 If D = W, then approach = D/2
 If D > W, then approach = D/2
 But we will have to take more than
one transverse cut to complete one cut
on the face width. By: Aragaw G.(MSc.) 2017 93
Cont’d

 (ii) For slab or spot milling :
where D = Dia of cutter; d = Depth of cut.
 This formula is valid when depth of cut is less than radius of cutter
i.e., the added table travel is equal to radius of cutter.
Cont’d

Examples
1. Estimate the manufacturing cost and selling price of the given
component. The part is made from dia.45 x 95mm long mild steel
having 8g/cm3 density. Use the following data for calculation:
 Assume
 For turning ‘V’ = 30 m/min; ‘f’ = 0.35 mm/rev
 For thread cutting ‘V’ = 10 mm/min;
 Depth of cut = 1.25 mm
 For drilling ‘V’ = 30 m/min; ‘f’ = 0.1 mm/rev Dia=6mm
 For chamfering ‘f’ = 0.25 mm/rev; ‘V’ = 30 m/min
 Labour cost = $20/hr
 Material cost = $100
 Overhead charge = 20% of material cost
 Profit = 20% of total cost
 Take setup and handling time = 20% of total time

Cont’d
2. A T-slot is to be cut in a C.I. slab as shown in Fig. below. Estimate
the total production cost.
Take
 Cutting speed 25 m/min,
 Feed is 0.25 mm/rev,
 Dia of cutter for 20mm channel milling is 80 mm
 Dia of cutter for T-slot milling is 60 mm
 Material cost = $50/Kg
 Density of C.I = 7.5gms/cc
 Labour charges = $120/hour and
 Other overheads = 80% of prime cost.

Lo5. Verify Cost Estimate
 Verification of estimated cost is done to be sure or demonstrate
that the estimated cost is true, accurate, or justified.
 Actual costs are compared with estimated cost to identify
deviations.
 Deviations =Actual costs - estimated cost
 Deviations can be expressed in terms of fractions or percentage ;
%of deviation = (Deviations/Actual costs) x 100%
 Finally
selling price =Actual costs =Deviations + estimated cost

Preparing Cost Estimate for Manufactured Products.ppt-Aragaw-edited.pdf

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