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Cost Estimation Report: 16me327 Production Manangement

The document provides a cost estimation report for a production management course. It defines different types of costs like fixed, variable, opportunity, and sunk costs. It also explains the different components that make up the total cost of a product, including direct material costs, direct labor costs, indirect costs, and other expenses. The report includes a formula for calculating cost estimation and provides an example cost estimation for a steering rod component. The market price for the steering rod is estimated to be Rs. 245 based on calculations of prime cost, factory cost, manufacturing cost, total cost, selling price, and market price.

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24 views6 pages

Cost Estimation Report: 16me327 Production Manangement

The document provides a cost estimation report for a production management course. It defines different types of costs like fixed, variable, opportunity, and sunk costs. It also explains the different components that make up the total cost of a product, including direct material costs, direct labor costs, indirect costs, and other expenses. The report includes a formula for calculating cost estimation and provides an example cost estimation for a steering rod component. The market price for the steering rod is estimated to be Rs. 245 based on calculations of prime cost, factory cost, manufacturing cost, total cost, selling price, and market price.

Uploaded by

Ragul
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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COST ESTIMATION REPORT

16ME327 PRODUCTION MANANGEMENT

SUBMITTED BY
KAVIN S A (16TUME107)
KIRAN KISSHORE R (16TUME108)
INTRODUCTION:
A cost estimate is the approximation of the cost of a program , project or
operation. The cost estimate is the product of the cost estimating process. The
cost estimate has a single total value and may have identifiable component
values .A problem with accost overrun can be avoided with a credible, reliable,
and accurate cost estimate. A cost estimator is the professional who prepares
cost estimates. There are different types of cost estimators, whose title may be
preceded by a modifier, whose title may be preceded by a modifier, such as
quantity surveyors and cost engineers may also prepare cost estimates or
contribute to cost estimates. In the us, according to the Bureau of labour
statistics, there were 1845.400 cost estimators in 2010.

DIFERENT TYPE OF COSTS


FIXED COST: Those where amounts cannot be changed in the short run
(e.g. building mortgage, building heat, equipment, insurance costs, bond
interest).

VARIABLE COST: Costs whose total amount goes up or down when


volume goes up or down (also called - direct costs, incremental costs, or
marginal costs), (e.g. raw materials, shielding gas, electrodes, some energy
costs, labour).

OPPORTUNITY COST: The cost incurred in selecting one option over


another is called opportunity cost.

SUNK COST: Certain costs are incurred and cannot be recovered these are
sunk costs. Continuing with our example of toy manufacturing unit, sunk costs
would refer to machinery cost that has been incurred.
TOTAL COST OF THE PRODUCT
DIRECT COST: Direct costs are similar to variable costs. They can be
directly attributed to the production .of output. The system of valuing
inventories called direct costing is also known as variable costing. Under this
accounting system only those costs that vary directly with the volume of
production are charged to products as they are manufactured.

INDIRECT COST: Indirect costs, on the other hand, are similar to fixed
costs. They are not directly related to the volume of output. Indirect costs in a
manufacturing plant may include supervisors' salaries, indirect labour, factory
supplies used, taxes, utilities, depreciation on building and equipment.

MATERIAL COST: Product production’s monetary investment. Things


that incur material costs, for example, are the ingredients of a meal or the parts
of a machine. The cost of labour to produce the product is separate from this
cost. The total cost of a product and its eventual sale price are arrived at by
combining the material cost with the cost of labour.

LABOUR COST: The cost of labour is the sum of all wages paid to
employees, as well as the cost of employee benefits and payroll taxes paid by an
employer. The cost of labour is broken into direct and indirect (overhead) costs.

OTHER EXPENSES: Other expenses are expenses that do not relate to a


company's main business. As well as operating costs, the company needs to
consider other expenses including interest expense and losses from disposing of
fixed assets. Examples of other expenses include interest expense and losses
from disposing of fixed assets.
FORMULA FOR COST ESTIMATION:

Prime cost = (Direct material cost + Direct Labour cost + Direct expenses)

Factory cost = (Prime cost + Factory expenses)

Manufacturing cost = (Factory cost + Administrative expenses)

Total cost = (Manufacturing cost + Selling and Distributing expenses)

Selling price = (Total cost + Profit).

Market price = (Selling price + Discount)

COMPONENT DIAGRAM:
COST ESTIMATION FORM

DESCRIPTION: Steering Rod DATE: 16/10/19


PART NO: 0037 ENQUIRY NO: 24
MATERIAL: Steel

S NO LIST OF EXPENDITURE COST PER COMPONENT

Direct material cost per component 50


1
Labour Cost per component
2 OPERATION COST OVERHEAD
(Rs) (Rs)
Turning 20 10
30
Facing 20 10 30
Welding 35 15 50

Other Direct Expenses 10


3
factory and Administrative expenses 20
4
Selling expenses 15
5
profit & distribution expenses 40
6
CALCULATION:

Prime cost=direct material cost + direct labour cost + direct expenses.


=50+110+10
=170
Factory cost=prime cost +factory cost.
=170+10
=180
Manufacturing cost =factory cost + administrative cost
=180+10
= 190
Total cost=manufacturing cost +distribution expense
=190+20
=210
Selling price=Total cost + profit
=210+20
=230
Market price = Selling price + selling expenses
= 230 + 15
=245.

CONCLUSION:
Thus the cost estimation for the given component. The market price of
the component is rupees 245.

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