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

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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 ...
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