1. Ch 3-1 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Cost Analysis and Estimating for Engineering and Management Chapter 3 Material Analysis

2. Ch 3-2 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Overview l Look at Material in Manufacturing l Determine the Material Cost  Finding the Amount of Material Needed  Obtaining a Cost for Material per Unit l Consider Joint Material Costs

3. Ch 3-3 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Role of Material l Manufacturing Changes Material  The Change Adds Value  Results in a Product  Product May Become Material to the Next Enterprise l Material Is the Substance Being Altered

4. Ch 3-4 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Definitions l Material  Purchased, Not Manufactured  Accounts for Up to 50% of Product Cost l Product  Completed, Suitable for Delivery l Customer  User of the Product  External or Internal to the Company

5. Ch 3-5 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Definitions l Direct Material  Becomes Part of the Product  Included in the Design l Indirect Material  Used to Facilitate Manufacturing Process l Components  Used as Purchased in Assembly

6. Ch 3-6 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Manufacturing Processes l Mixing, Combining, Refining l Casting and Molding l Cutting, Shaping, Forming l Joining and Assembly l Cleaning, Painting, Finishing, Coating l Packaging

7. Ch 3-7 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Material Costs l Two Parts  Amount of Material (Number of Units)  Cost of Material (per Unit) l Amount of Material  Calculated  Includes Allowances for Waste, etc.

8. Ch 3-8 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Cost of Material l Historical Cost l Contracted Cost l Formal Quotes l Other with Varying Degrees of Accuracy  Informal Quotes/Estimates from Suppliers  Catalogs  Estimates, “Guess-timates”

9. Ch 3-9 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Other Cost Variations l Price Changes l Market Conditions l Volume Price Breaks l Discounts

10. Ch 3-10 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Amount of Material l Bill of Material  Material Required for the Design  Specified by the Designer l Specifications  Additional Information About the Material  Defines Detailed Requirements l Need Correct Quantity of Material

11. Ch 3-11 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Other Designations l Subcontract Items  Made to Specific Designs  Not Sold to Others  Not Catalog Items l Interdivisional Transfer  “Sold” to Another Division of the Company

12. Ch 3-12 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management How Much Material? l Amount of Material IN the Design l Amount of Material NEEDED to Make the Design l Difference = Loss l Shape  Amount of Material In the Design

13. Ch 3-13 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Shape l Units Compatible with Purchased Material l Design Should Optimize Material Usage l Calculate Volume of the Part l Convert Volume to Appropriate Units

14. Ch 3-14 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Finding Shape Volume l Calculate volume of cylinder part “A” l Subtract volume of hole in cylinder “A” l Calculate volume of plate “B” l Find volume of half cylinder at each end l Find volume of trapezoidal portion between l Subtract volume of two holes in plate A B

15. Ch 3-15 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Material Required to Make l Depends on:  Arrangement of Parts to Raw Material  Process Allowances l Efficiency of Material Use Is Important

16. Ch 3-16 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Effects of Part Layout 14 Parts 12 Parts

17. Ch 3-17 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Additional Material l Waste  Determined by Design & Raw Material  Difference Between Raw Material Dimensions and Part Shape l Scrap  Material Lost Due to Mistakes/Errors l Shrinkage  Material Lost Due to Physical Deterioration

18. Ch 3-18 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Calculating Material l Additive Processes (Molding, Casting)  S f = Shape for Finished Part  S s = Amount of Material to Start Eq 3.1

19. Ch 3-19 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Calculating Material l Subtractive Processes (Machining) l No Simple Equation l Use the Process

20. Ch 3-20 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Machining Material Process 1. Obtain the finished part shape (S f ) and build quantity. 2. Determine the configuration of the raw material. This consists of the dimensions of the specified or supplied material. 3. Determine cutoff and clamping material requirements. 4. Lay out how the parts will be cut out of the supplied material.

21. Ch 3-21 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Process Continued 5. Determine the number of parts that can be made from each unit of supplied material (n 1 ) 6. Divide the total number of parts required by n 1 to obtain the number of units of raw material needed. 7. Compute the total amount of material in units compatible with the pricing scheme (e.g. pound for $/lb, etc.)

22. Ch 3-22 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Efficiency l Ratio of Useful Material to Purchased Material Eq 3.2

23. Ch 3-23 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Figuring Cost l Sometimes Waste & Scrap (Called Salvage) Can Be Sold l Salvage Value l Salvage Reduces Material Cost Eq 3.3 Eq 3.4

24. Ch 3-24 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Material Cost Policies l Material Specification  Lots of Choices for Material  Design Must Specify Explicitly l Commodities  Highly Standardized Materials  Lots of Market Competition  Commonly Stocked, Catalog Items

25. Ch 3-25 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Contractual Costs l Quotations  Terms and Conditions  Delivery Date  Fixed Price l Quote or Price-In-Effect  Allows Seller to Adjust for Increased Costs

26. Ch 3-26 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Material from Inventory l Company Maintains Inventory of Materials  Used By Many Jobs  Orders Combined  Material from Different Orders l Different Order Times l Different Quantities (Quantity Discounts) l Material Used Has Varying Cost

27. Ch 3-27 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Inventory Example

28. Ch 3-28 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Cost By Time and Quantity Quantity Period1-23-4 Historical costs -211.108.95 11.259.00 012.009.65 Forecast costs 112.9510.01 212.9710.44

29. Ch 3-29 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Original Cost Policy $7.80

30. Ch 3-30 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Last Cost Policy $7.90

31. Ch 3-31 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Current Cost Policy No Current Receipts Assume Qty =8 $7.85

32. Ch 3-32 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Lead-Time Replacement Cost $12.95

33. Ch 3-33 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Delivery Cost Policy No Receipts Assume Qty = 8 $10.01

34. Ch 3-34 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management MOOP Cost Policy $7.90 3 x $7.90 + $7.80 $31.50 / 4 = $7.88

35. Ch 3-35 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management $12.95 +$7.90 $20.85/2 =$10.42 $12.95 2 x $13.52 2 x $10.32 $47.68 / 4 = $11.92

36. Ch 3-36 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management MOOP Cost Policy (7.88x2)+7.90+10.42+12.95+(11.92x3)=$82.79 $10.35 / Unit $11.92 $12.95 $10.42 $7.90 $7.88

37. Ch 3-37 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Comparison of Policies PolicyUnit Cost Original Cost (FIFO)7.80 Last Cost (LIFO)7.90 Current Cost7.85 Lead Time Replacement (NIFO) 12.95 Cost at Delivery10.01 Money Out of Pocket (MOOP) 10.35

38. Ch 3-38 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Joint Material Costs l Similar to Joint Labor Costs  Often Includes Some Joint Labor Cost l Start with a Common Material l At Some Point, Split into Different Products l Need to Apportion Material Cost to the Various Products

39. Ch 3-39 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Distinction l Distribution Process  Material Divided but Not Changed l Conversion Process  Material Is Changed During the Separation Process

40. Ch 3-40 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Dejointing Cost l Sometimes Multiple Basis for Dejointing l Marketing Decisions May Influence  One Product Subsidizes Another  Premium and/or Discount Pricing l Accurate Costing Needs to Know Actual Cost Distribution

41. Ch 3-41 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Product Designations l Primary Product  Reason the Process Exists l Secondary Product  Would Not Exist If Not for the Primary Product

42. Ch 3-42 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Summary l Discussed Material Used in Manufacturing l Learned How to Determine the Amount of Material Needed l How to Find a Unit Cost for Material l Used the Cost and Amount to Get Material Cost