unit4notes - Unit 4 Estimating process cost: cost modelling...

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Unit 4 Estimating process cost: cost modelling for selection
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2 CES EduPack Notes for Instructors Frame 4.1 Outline: estimating process cost Description Unit 3 explored the constraints that guide choice of process and the ways these are applied. We have not till now considered how to rank the processes that meet the constraints – that is, we have not identified an objective . One overwhelmingly dominates: it is cost. It can be applied in an indirect way by screening on economic batch size as we did in selecting the spark plug insulator: the limit of “economic batch size > 1,000,000” screened out one other process (CVD) that had met all the other constraints. CVD is not economic at this batch size. Press-sintering and Powder injection moulding are. That is not a bad way to introduce economics, particularly in a 1 st year course. But it is revealing to tackle the problem more directly: by estimating process cost. The analysis, though approximate, introduces the key concepts of cost analysis. This frame lists the points that are developed. Further Information Cost estimation: The Text, Chapter 11, p. 274 - 279
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Unit 4: Estimating process cost 3 Frame 4.2 Cost estimation Description Cost estimation for purposes of competitive bidding requires precision: profit margins are often less than 10%; an error of a few % can spell disaster. Cost estimation for ranking of choice – our purpose here – requires only relative values, allowing the conclusion that one process is more or less expensive than another. That means the model can be approximate, but it must be broad, to allow comparison between different process families. The one described here has those features. Before developing it, it is worth introducing students to the most basic economic equation of all, shown in the lower half of this frame. The ultimate economic objective is not so much to minimise cost as to maximise the difference between cost and value – the worth the consumer perceives the product to have. If, by using more expensive materials and processes value is increased more than cost, the difference V-C increases, allowing the profit P-C to be maximised. But, having said that, the pressure is always on to reduce cost.
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4 CES EduPack Notes for Instructors Frame 4.3 Inputs to the manufacturing process Description We consider here estimation of cost for shaping processes. A cost model that will allow a comparison between all families of process requires inputs that are common to them all. They are listed here in the arrows entering the Manufacturing Process box. Each has an associated cost. The cost of one unit of output is the sum of the contributions from each of these. Materials and energy are obvious. Capital includes the cost of production equipment and tooling. Time includes labour and administration and other overheads. Information exist.
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Unit 4: Estimating process cost 5 Frame 4.4 Inputs to a cost estimate
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unit4notes - Unit 4 Estimating process cost: cost modelling...

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