The document discusses sheet metal part costing using the zero-based costing methodology. It involves 4 main stages: 1) raw material cost component, 2) operation/process cost component, 3) other cost components like rejections and overheads, and 4) transportation and packaging costs. The methodology provides a transparent cost structure by evaluating each stage separately and identifying all associated costs to arrive at the total cost of manufacturing a sheet metal part.

1. Sheet Metal Part Costing

2. Industrial Manufacturing flow chart
1. Understanding the customer
requirement or the part
specification
2. Process flow to arrive at
desired job result
3. Identifying various
manufacturing processes
required at each stage
4. Identify various raw materials
application and optimum
grades of materials
appropriate for that
application
5. Machining hours, manhour,
electricity, land, etc estimates
6. Finally, define the scrap and
discard waste as per norms

3. What is Sheet Metal ?
• Sheet metal is metal formed into
thin, flat pieces, by various
industrial process. Sheet metal is
one of the fundamental forms used
in metalworking, and it can be cut
and bent into a variety of shapes.
• Application in automobile industry
revolve around thin sheets of 1/64
inch to ¼ inch to be converted into
desired output part
• Going ahead will see about more
details in sheet metal materials

4. Applied materials in sheet metal processes
• There are many different
metals which may be
processed into thin sheet
metals, such as
aluminum, brass, copper,
steel, tin, nickel, and
titanium.
• Stainless steel - Grade
304 is the most common
of the three grades. It
offers good corrosion
resistance while
maintaining formability a
nd weldability.
Common sheet metal
parts
Stainless steel coil

5. • Aluminum is also a popular
metal used in sheet metal due
to its flexibility, light weight,
and cost effectiveness
• Most common Grade 3003-
H14 is fairly strong, while
maintaining the same
formability and low cost. It is
corrosion resistant and
weldable. It is often used
in stampings, spun and drawn
parts, and fan blades
• Brass is an alloy of copper,
which is widely used as a
sheet metal. It has more
strength, corrosion resistance
and formability when
compared to copper while
Aluminum Sheet Brass Sheet
Pressed brass components

6. Example Operations on Sheet metal
Embossing
Cutting
Bending
Blanking
Roll Forming
Deep Drawing

7. Costing models and need for costing-
• Need for costing in purchasing is-
• Verify part quote received from vendors
• Analyse product manufacturing cost estimate
• Give appropriate estimates to marketing/sales
team for finished product make cost
• Three major types of costing methods are-
• Job-Order costing : involves calculation of costs
involved in a construction job or manufacturing
done in batches
• Process job order costing: similar to job-order
process, it follows process stages in production.
All processes assumed to be homogenous
• Activity based costing (ABC): Based on direct
labour hours or rate based system to evaluate
hourly costs
• Mostly the models are derived from same four stage
structure we will see in the next few slides

8. Part cost evaluation-
• Costing sheet is a method of structured plotting to analyze data. Various
fields are structured to evaluate stage wise part cost.
• Most prevalent method of costing is Zero Based Costing(ZBC)- is a holistic
approach that tackles costs at the root by assessing expenses for all
organizational activities in structured fields.
• Zero-Based Costing (ZBC) is a tool to estimate the actual cost of any
manufacturing component or it gives an insight into how much the cost of
the part would be which can act as a reference to check your suppliers
quote.
• It provides a transparent structure for cost estimate
• Properly defines each stage of manufacturing and each stage cost is
evaluated separately
• Allows more detail structure, and is capable of improving costs wherever
possible

9. Four Basic stages in costing-
NET RM
Cost
Component
Operation or
Process cost
component
Other cost
component
Transportation
& Packaging

10. First- RM Component
• Identify the raw material specification
and grade of materials
• Understand part size and shape
• Raw material Size (mm)
• Identify the operations which could be
required to arrive at job output
• Stamping usually has coil strip input
material
• Utilization of material%
• Net RM cost=Input RM cost- scrap cost
NET RM Cost
Component

11. Second-Machining Cost Component
Depreciation Cost
• Normally m/c work fine
for 8yrs, we consider
5yrs
• Equipment cost of 20
Lakh has depreciation
as
20*100000/5/12/22/8
Rs/hour
• Formula-Divide by
12months, divide by
22working days, divide
by 8hours shift
Labour Cost
• Minimum one operator
with a helper at each
machine add labour
costs
• Monthly wages of one
worker Divide
22working days, divide
by 8hours shift*2 for
two people attending a
m/c gives cost/hr
Auxiliary material cost
• Lubricating oil, grease,
volatile liquid for
equipment functioning
• Estimate of
25000/month cost for
each m/c, Divide
22working days, divide
by 8hours shift gives
cost/hr
• Process cost component estimate is based on the type of operation on the job, its
evaluation is based on two major methods-
1. Direct Process cost evaluation →
2. Machine Hour
Rate (MHR) method
In direct cost
evaluation we add
up all these heads
and then as a lump
sum add over
insurance, rent,
lighting etc. charges
Operation or
Process cost
component

12. Machine Hour Rate (MHR)-
Machine hour rate (MHR) is the cost of running a machine for one hour. Under
this method machines hours are used as the basis for production overhead
absorption rate.
• Advantages:-
(i) It takes into account time factor.
(ii)It is suitable when major portion of production is performed by
machines.
(iii) It ensure accurate and reliable cost estimates.
(iv)The under –absorption of overheads would indicate the idle capacity
of machines.
• Disadvantages- It is not suitable where major part of production done by
manual labour. Inaccurate results if manual labour is equally important.

13. Machine Hour Rate (MHR) Cost Component-
• Has mainly two components standing &
running charges
• Standing Charges-
• Land rent & Insurance
• Supervision
• Lighting
• Machine Insurance
• Lubricating oil/consumables
• Running Charges-
• Machine Hourly Depreciation value
• Repairs and maintenance
• Power Consumed
• MHR calculated for a machine is total
sum of standing charges and total
running charges

14. Third-Other cost components
• After
calculating first
and second
costs, we arrive
at other costs
based on
earlier
estimates
• These revolve
around the
earlier
estimates and
have an
industry thumb
rule applied
•Rejection- no process cannot be
fully error free, so rejections take
place at various stages of
production. Usually considered as
1% of (RM + Process cost)
Inventory carrying cost (ICC)- at
any point plant carries some FG
ready stock materials and also
some RM as safety stock , these
charges are usually 1% of RM cost
Profit-Margin manufacturer earns
for doing business, usually
considered as 6% on (RM +
Process cost)
Overheads- Include staff salaries,
liabilities, insurance, utilities,
advertising, and promotions.
Usually considered as 15% of
process cost.
RM Cost & Process
cost estimates
Other cost
component

15. Transportation & Packaging Costs
• Transportation costs
• Usually transportation costs are fixed,
still to verify rates we can evaluate based
on three major factors →
• Packaging cost
• Mostly all FG parts are transported in
carton box packaging, Corrugated
cardboard having good cost to strength
characteristics
• Cost is usually evaluated based on GSM
and number of flute in a cardboard box.
• More number of flutes give higher
strength but add more cost
• Packaging industry and its costing has its
own costing standard
• Costs are defined by GSM*volume
dimensions of box
• Machinery or fragile goods are
transported in wooden boxes for more
strength and safety
On road fuel
charges
Vehicle mileage
and fuel rates
per kilo meter
are evaluated,
according to
running length
the value is
evaluated
Vehicle
cost/hour
Buying value or
rent cost is
identified and
accordingly
cost is loaded
trip wise based
on transit days
Loading/
Unloading
charges
Driver wages are
based on
number of trips
to and fro, also
co-driver
loading/unloadi
ng wages
Three flute corrugated cardboard
Transportation charges factors
Transportation
& Packaging

16. One complete example-

17. Advantages & Drawbacks of ZBC methodology-
Advantages-
• Efficiency : Zero-based costing helps in clear understanding of resources efficiently as it looks at the
actual numbers
• Accuracy : This methodology helps in cost reduction to a certain extent as it gives a true picture of
costs against the desired performance.
• Reduction in redundant activities : This approach leads to identifying optimum opportunities and more
cost-efficient ways of doing things by eliminating all the redundant or unproductive activities
• Coordination and communication : it provides better coordination and communication within the
department and motivation to employees by involving them in decision-making.
• Transparency : Clear and transparent costing format is defined to maintain trust and clear
understanding
Drawbacks-
• Time consuming : This Zero-based budgeting approach is highly time-intensive.
• Lack of expertise: Providing an explanation for every line item and every cost is a problematic task
and requires training.

18. Thank You