E421-7A1 - CHAPTER 7 CHAPTER COST COST ESTIMATION...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: CHAPTER 7 CHAPTER COST COST ESTIMATION TECHNIQUES TECHNIQUES TECHNIQUES FOR ESTIMATING COSTS / REVENUES REVENUES The Index • A dimensionless number that shows how prices / dimensionless costs vary with time -- a measurement of inflation or deflation or • Changes usually occur as a result of: – – – technological advances availability (scarcity) of labor and materials changes in consumer buying patterns • It establishes a reference from some base time It period (i.e., a base year) period • When compared to a current-year index measures the amount (%) change from the base TECHNIQUES FOR ESTIMATING COSTS / REVENUES REVENUES The Index • IN = Index for some current year, N • Ik = Index for some base year, k • Ck = cost of some item during base year CN = Ck ( IN / Ik ) • CN = cost of the item during the current year • Also referred to as the ratio technique TECHNIQUES FOR ESTIMATING COSTS / REVENUES REVENUES The Unit Technique • Per unit factor • Cost / price per : kwh, Mwh inch, cm, foot, yard, inch, meter, mile, km meter, second, hour, day pound, ton, kg person, family TECHNIQUES FOR ESTIMATING COSTS / REVENUES COSTS The Factor Technique • • An extension of the unit method Sum of products of component quantities and Sum corresponding unit costs plus component costs estimated directly estimated C = Σ dCd + Σ mfmUm C = cost being estimated cost Cd = cost of d estimated directly fm = cost per unit of m cost Um = number of units of m number TECHNIQUES FOR ESTIMATING COSTS / REVENUES REVENUES The Power-Sizing Technique • Also referred to as exponential model • Used for costing plants and equipment • Recognizes that cost varies as some power of the Recognizes change in capacity or size change Example (CA / CB) = (SA / SB)X CA = CB(SA / SB)X CA = Cost of plant A SA = Size of plant A CB = Cost of plant B SB = Size of plant B X = cost-capacity factor (reflects economies of scale) TECHNIQUES FOR ESTIMATING COSTS / REVENUES REVENUES The Learning and Experience Technique • Learning curve is a mathematical model that Learning explains increased worker efficiency and improved performance from repetitive production improved • Also experience curve or manufacturing progress Also function function Zu = Kun u = the output unit number Zu = # resource units to produce output unit u K = # resource units to produce 1st output unit resource s = learning-curve slope parameter (decimal) n = log s / log 2 log ...
View Full Document

Ask a homework question - tutors are online