Engineering Costs

Engineering costs for many years have basically been included in the standard burden rate of the shop.  There are many situations now in this world where manufacturing is very competitive and technical that the standard burden rate of the shop cannot include all the costs associated with the engineering costs.

Direct Engineering Costs

Direct engineering costs would include things like design work, engineering, prototyping, testing and tooling design work.  Many job shops today have become turnkey where they don’t produce just a single small widget which is easy and simple to engineer, cost and manufacture.  On the other hand the jobs that manufacturing companies are required to produce can be very extensive including everything from a small box to an entire machine tool made up of of 100′s or even 1000′s of components.   The costs associated with doing the initial engineering can be very extensive and rightly so.  Many job shops have CNC machinery and during the estimating process to arrive at the most accurate costs they actually program and sometimes even manufacture the prototype.

Indirect Engineering Costs

Indirect engineering costs include computers, software and man power required to assist in manufacturing the product.  The costs of these indirect engineering items can be extensive and should be allocated across the job that uses these tools.

MIE Solutions provides software resources to help you manage your direct and indirect labor throughout the product life cycle from quoting and estimating, job costing to invoicing.

MIE Solutions Estimating Software

Engineer To Order Material Costs

Now that we have been investigating many of the details of material costs in quotations, we will now take a look at the mathematical calculations required.

Engineer To Order Material Costs

Step 1)  Determine the quantity of parts required.   This is the number of parts required to make the end product.  In many situations if you are building a large assembly there may be situations where parts required would be greater than 1.

partsRequired = 1   // Usually 1

Step 2) Determine the total quantity required to manufacture the quantity that is being requested on the quotation

totalQuantity   = quotationQuantity*partsRequired

Step 3)  Calculate the number of parts or pieces that can be made out of a single purchased stock.

stockPieces = xxx

Step 4)  Stock Required is the number of purchased units that are required to manufacture the quoted quantity

stockRequired = Ceiling(totalQuantity / stockPieces)

Step 5) Determine the unit cost of the stock item.  With quantity breakouts the cost may vary depending on the quantity.  Also, the breakouts may be in different units, i.e. LBS versus EACH.  So we find the matching price based on the totalQuantity multiplied by the Unit Of Measure conversion.

price = FindMatchingPrice(stockRequired*unitOfMeasureConversion)

The goal now is to come up with a Unit Cost of material based on the values above and the type of material calculation which was described earlier.

MIE Solutions provides software resources to help you manage your direct and indirect labor throughout the product life cycle from quoting and estimating, job costing to invoicing.

Assuming sheets or plates of material which have both width and length.

Single Part Price

return price

Lot Price

return price/totalQuantity

Amortize

return (unitOfMeasureConversion*stockRequired*price)/ totalQuantity

Calculate Include Scrap

return price *unitOfMeasureConversion/stockPieces

Calculate Without Scrap

return price *(unitOfMeasureConversion / ((stockWidth*stockLength)*(blankWidth*blankLength))/partsPerBlank

MIE Solutions provides software resources to help you manage your direct and indirect labor throughout the product life cycle from quoting and estimating, job costing to invoicing.

http://www.mie-solutions.com/mie/index.php/MIE-QuoteIt-Quoting-and-Estimating-Software/mie-quoteit.html

Material In Cost Estimates Weight Calculation

Material costs in job estimates can come in a variety of ways.   When you are estimating the cost to manufacture a product and the product is made out of either plate material, sheets, tubing, etc there are a few calculation methods that may be required.

Here is a list of 7 calculation methods which are used to determine the cost.

Lot Price – This method is used when you are giving the price as a single lot charge.  For example, if you are quoting 10 pieces and the lot charge for the material is $50.00, the price each would be $5.00

Amortize Price – This method is used when you want to distribute the costs among all the material even if there is a lot of scrap left over.   This situation is used when the material may only be used for this job and you cannot reuse the material so it has to be charged back to the customer.

Single Part Price – This is the simple method where you just put in a cost.  This is not usually used unless your getting the raw material as actual size the customer requires and the cost you were given is piece price.

Calculate Without Scrap – This method will take the cost of the part size directly and not include any scrap that may be associated with it including left over blank scrap and full stock size scrap.

Calculate With Scrap – This method will take the left of scrap of the stock size and amortize this into the piece price.

Calculate Blanks Include Scrap – This method will use the minimum cost of the blank required and amortize that into the cost.  Also the scrap of the stock size will be used.

Calculate Blanks Without Scrap – This method will use the minimum cost of the banks required and amortize that into the cost but will not include the stock scrap cost.

The next blog entry will go over real life calculations of each of these types.

MIE Solutions provides software resources to help you manage your direct and indirect labor throughout the product life cycle from quoting and estimating, job costing to invoicing.

http://www.mie-solutions.com/mie/index.php/MIE-QuoteIt-Quoting-and-Estimating-Software/mie-quoteit.html

Material Weight

Material Weight

In order to estimate the cost of material it is essential that you know the weight of different material gauges and types of material.   Below you will find a list of some common weights dealing with the metal industry and metal fabrication.  One of the key factors is knowing the weight factor because its the same for all gauges of like material.

Weight Factor – Weight Per Cubic Inch of Material

The weight factor is calculated by the following formula

(Weight) / (Width * Length * Thickness)

The nice thing about knowing the weight factor is you can easily determine the weight of any size of metal.  For example, 16 Gage sheet steel has a weight factor of 0.29032.  If you have a 36×96 inch sheet of 20 Gage Sheet Steel, the weight would be 0.0375*36*96*0.29032 resulting in 60 Lbs.  Knowing the weight factor of sheet steel you now can calculate all the weights very easily.

Gauge and weight chart for sheet steel. galvanized steel, stainless steel, aluminum and strip & tubing.

Gauge	US Standard Gauge	Sheet Steel		Galvanized Steel		Stainless Steel		Aluminum		Strip & Tubing
	(inches)	Gauge Decimal (inches)	Weight (lb/ft2)	Gauge Decimal (inches)	Weight (lb/ft2)	Gauge Decimal (inches)	Weight (lb/ft2)	Gauge Decimal (inches)	Weight (lb/ft2)	Gauge Decimal (inches)
44	0.0047
43	0.0049
42	0.0051
41	0.0053
40	0.0055
39	0.0059
38	0.0063	0.0060				0.0062		0.0040
37	0.0066	0.0064				0.0066		0.0045
36	0.0070	0.0067				0.0070		0.0050		0.004
35	0.0078	0.0075				0.0078		0.0056		0.005
34	0.0086	0.0082				0.0086		0.0063		0.007
33	0.0094	0.0090				0.0094		0.0071		0.008
32	0.0102	0.0097				0.0102		0.0080		0.009
31	0.0109	0.0105				0.0109		0.0089		0.010
30	0.0125	0.0120	0.500	0.016	0.656	0.0125		0.0100	0.141	0.012
29	0.0141	0.0135	0.563	0.017	0.719	0.0141		0.0113	0.160	0.013
28	0.0156	0.0149	0.625	0.019	0.781	0.0156		0.0126	0.178	0.014
27	0.0172	0.0164	0.688	0.020	0.844	0.0172		0.0142	0.200	0.016
26	0.0188	0.0179	0.750	0.022	0.906	0.0187	0.756	0.0159	0.224	0.018
25	0.0219	0.0209	0.875	0.025	1.031	0.0219		0.0179	0.253	0.020
24	0.0250	0.0239	1.000	0.028	1.156	0.0250	1.008	0.0201	0.284	0.022
23	0.0281	0.0269	1.125	0.031	1.281	0.0281		0.0226	0.319	0.025
22	0.0313	0.0299	1.250	0.034	1.406	0.0312	1.26	0.0253	0.357	0.028
21	0.0344	0.0329	1.375	0.037	1.531	0.0344		0.0285	0.402	0.032
20	0.0375	0.0359	1.500	0.040	1.656	0.0375	1.512	0.0320	0.452	0.035
19	0.0438	0.0418	1.750	0.046	1.906	0.0437		0.0359	0.507	0.042
18	0.0500	0.0478	2.000	0.052	2.156	0.0500	2.016	0.0403	0.569	0.049
17	0.0563	0.0538	2.250	0.058	2.406	0.0562		0.0453	0.639	0.058
16	0.0625	0.0598	2.500	0.064	2.656	0.0625	2.52	0.0508	0.717	0.065
15	0.0703	0.0673	2.813	0.071	2.969	0.0703		0.0571	0.806	0.072
14	0.0781	0.0747	3.125	0.079	3.281	0.0781	3.15	0.0641	0.905	0.083
13	0.0938	0.0897	3.750	0.093	3.906	0.0937		0.0720	1.016	0.095
12	0.1094	0.1046	4.375	0.108	4.531	0.1094	4.41	0.0808	1.140	0.109
11	0.1250	0.1196	5.000	0.123	5.156	0.1250	5.04	0.0907	1.280	0.120
10	0.1406	0.1345	5.625	0.138	5.781	0.1406	5.67	0.1019	1.438	0.134
9	0.1563	0.1495	6.250	0.153	6.406	0.1562		0.1144	1.614	0.148
8	0.1719	0.1644	6.875	0.168	7.031	0.1719	6.93	0.1285	1.813	0.165
7	0.1875	0.1793	7.500			0.1875	7.871	0.1443	2.036	0.180
6	0.2031	0.1943	8.125			0.2031		0.1620	2.286	0.203
5	0.2188	0.2092	8.750			0.2187		0.1819		0.220
4	0.2344	0.2242	9.375			0.2344		0.2043		0.238
3	0.2500	0.2391	10.00			0.2500		0.2294		0.259
2	0.2656					0.2656		0.2576		0.284
1	0.2813					0.2812		0.2893		0.300
1/0 (0)	0.3125					0.3125		0.3249		0.340
2/0 (00)	0.3438					0.3437		0.3648		0.380
3/0 (000)	0.3750					0.3750		0.4096		0.425
4/0 (0000)	0.4063					0.4062		0.4600		0.454
5/0 (00000)	0.4375					0.4375		0.5165		0.500
6/0 (000000)	0.4688					0.4687		0.5800
7/0 (00000000)	0.5000

• 1 ft² = 0.0929 m²
• 1 lb = 0.4536 kg

http://www.engineeringtoolbox.com/gauge-sheet-d_915.html

MIE Trak ERP uses weight factors when calculating material costs.  MIE Solutions provides software resources to help you manage your direct and indirect labor throughout the product life cycle from quoting and estimating, job costing to invoicing.

http://www.mie-solutions.com

Material Estimating

Material estimating can be simple to complex depending on the particular job you are estimating.   Raw material is a commodity which could include metal sheets, wood, bars, plastic, plates, block of metal, etc.  These items are purchased from a supplier and are usually priced at a per unit weight price.

A few examples

1. When the raw material is priced as a per unit weight the estimated costs at the high level is

( Part Weight ) * (Price Per Unit Weight)

2. When the raw material is priced per unit. An example would be the supplier would price a 48 x 120 piece of plywood at $22.00

(Units Required) * (Price Per Unit)

3. The raw material may be priced per linear length, example wood be a tube would be priced at $2.00 per linear foot.

(Part Length) * (Linear Length Price)

The supplier would potentially have a Price Per Unit Weight, Price Per Unit or Linear Length Price that would fluctuate based on the quantity being purchased.  In this case the supplier would give prices as shown in the example

Weight           Price Per LB

0                       $1.00

1000               $0.80

5000               $0.65

10000             $0.61

 

As shown above you need to know the Part Weight, Unit Required and or Part Length.   Next you need to know the price that will be charged from the supplier and you will have the cost.

In the next blog entry the calculation of Part Weight will be discussed.

MIE Solutions provides software resources to help you manage your direct and indirect labor throughout the product life cycle from quoting and estimating, job costing to invoicing.

http://mie-solutions.com/mie/index.php/MIE-QuoteIt-Quoting-and-Estimating-Software/mie-quoteit.html

Material Cost Calculation

Material cost calculation potentially involves a lot of information.  In my previous blog I mentioned many of the data points involved in the material cost calculation including Parts Size, Blank Size, Stock Size, Safety Stock Size, and others.  One of the reasons you need the part size is raw material is usually a commodity.  The commodity is usually priced in some type of weight which needs to be calculated.

Lets discuss flat parts that are cut out of wood, metal, plastic, etc.  The first thing you need to get is the proper part size.  The part size is the minimum amount of material required to make the part.  When estimating you can take the part size as the smallest rectangle that will be large enough to make the part.  The reason that this is usually appropriate is that the some of the material would be scrapped and have to be charged to the job.  Now in the days of nesting software, its possible to nest parts together to save considerable amount of material costs.  In this situation it may be wise to actually use actual part size versus a more general rectangular part size for the material cost calculation.  If you are going to use exact calculation of the part size you will want to set a scrap percentage factor because nesting software still has a scrap factor.

When estimating the part size a DXF file that is analyzed could give you exact size pretty easy.  If your customer gives you a proper model you can extract this information directly, but if not, you may have to draw the part in a cad package to arrive at the desired size.   There are those who will actually nest the parts during estimation to arrive at the material costs but this can be misleading.  The reason this may be misleading for the material costs is there may be a different set of parts that actually get nested during production.  One way is to run some nesting simulations and see what the average scrap factor is and you will get most material costs estimated accurately.

This will be continued in my next blog.

MIE Solutions provides software resources to help you manage your direct and indirect labor throughout the product lifecycle from quoting and estimating, job costing to invoicing.

http://mie-solutions.com/mie/index.php/MIE-QuoteIt-Quoting-and-Estimating-Software/mie-quoteit.html

Raw Material Sheets Cost Calculation

Raw material sheets include plates, sheets, plywood and any other commodity item which is x,y and thickness dimensional.  Raw material is usually purchased by weight and is a commodity.  I’m going to define commodities as items where their price fluctuates constantly based on market forces.  Some commodities you have heard of is soybeans, wheat, oil, gold, solver, etc.  Before we start doing some math lets define some characteristics or information which needs to be gathered in order to manage the calculation.

Material Type -  The material type is the actual raw material commodity that will be used to make the part.  Examples are HRPO 16 Gage, 1/2 Inch Plywood, 1 Inch Aluminum Block and 0.125 thick piece of aluminum.

Part Size -  The part size is how much material will be directly used to manufacturer the item.

Blank Size – The blank size is how much material will be used over and above the part size to manufacturer the material.  An example would be  a printing company which requires the blank size to be 1/2 inch larger on each side of the material part size to manage the bleeding to the edge of the paper.  Another example is in sheet metal where there are edges including top, bottom, left and right which will extend beyond the boundaries of the part.

Parts Per Blank – How many parts can be made from one blank size.  This is the case when you make more than a single part inside a blank.  This can happen when you rectangular nest items together and get the optimum utilization or you nest shapes tightly onto a specific blank size.  Its more efficient if more parts could be made out of a blank because you eliminate handling time and all the time is spent actually cutting, milling the part.

Stock Size -  The stock size is the size of the raw material being purchased.  The purchased size then will be cut down into its blank  sizes and then part size.  You normally can make many parts out of a single stock size.

Safety Stock – Safety stock is similar to blank size except its for the entire stocking unit.  For example if you have a bar which requires a 6 inch clamp on one end during cutting, you just eliminated 6 inches from your cutting length because the six inches is already consumed by the clamp.

Scrap Factor Percentage – A scrap factor percentage which will include the scrapping of parts during the production phase of manufacturing.

Weight Factor – This is the weight per cubic inch of the raw material.  The weight factor is used to determine price of coils because there is no coil “length”

Setup Charges – Setup charges include charges above and beyond the commodity price and is amortized into the price of the commodity.

Shipping Charge – Shipping charge are those charges that are amortized into the commodity for shipping costs.

Minimum Charge – This would simply be the minimum that the part cost could be based on the given minimum.

This will be continued in my next blog.

MIE Solutions provides software resources to help you manage your direct and indirect labor throughout the product lifecycle from quoting and estimating, job costing to invoicing.

http://mie-solutions.com/mie/index.php/MIE-QuoteIt-Quoting-and-Estimating-Software/mie-quoteit.html

 

Direct Labor Costs

Direct labor costs are those costs which are performed during the production of some product.  The product can be any type of item from a machined part, computer and vehicle.  Labor is required to change a raw material into a product that may be sold or given away.  Direct labor is calculated by taking the direct time a product takes to create multiplied by the rate charged per hour by the processes.  The direct labor may actually be multiple steps on the production of the product. The total direct labor is  the sum of all the labor at the various steps during the creation of the product.  There are many examples of those that provide direct labor including Laser operators, CNC operators, Machine Shop operators, sheet metal workers, wood workers and many others.  You may think that direct labor is just the individual rate that you pay the employee but there is much more to it.  An employee has benefits including health insurance, sick days, vacation pay, FICA and other fees.  Adding up all the fees makes the hourly rate considerably higher than the hourly pay of the employee.

MIE Solutions provides software resources to help you manage your direct and indirect labor throughout the product lifecycle from quoting and estimating, job costing to invoicing.

http://mie-solutions.com/mie/index.php/MIE-QuoteIt-Quoting-and-Estimating-Software/mie-quoteit.html

 

Indirect Material Costs

Indirect material costs are those costs that are not directly added into the product.   There are many times materials required to manufacturer a part but those materials are not put into the product.  Examples of this situation are oils, lubricants for machines, sandpaper, molds and castings.   There are some situations where the molds and castings would be included into the direct material costs because they specific for the product.  When doing estimates in this way you have the choice of amortizing the mold and casting costs into the product or charge the customer separate as a one time charge.

Other possible indirect material costs are nuts, bolts, screws or inexpensive items.  Usually this would be added into the product causing those materials to be direct costs but there are situations depending on the product being manufactured where these type of items would be indirect costs.

 

Material Cost

Material cost is a big subject and will be handled in multiple blog entries.  Material costs are costs that directly go into producing the desired product.  Material costs can be divided into both direct and indirect material costs.  Direct costs are what we will be looking into because those costs are directly in the product.

Material can also be broken between raw materials which are commodities and other items which would include pre-manufactured “things” including nuts, bolts, screws, hard drives, memory chips, etc.  Raw materials dealing with commodities where their price may fluctuate daily is what we will deal with in the next few blogs entries.

Direct commodity material costs are those expenditures which can be allocated directly to the cost of the specific product.  Here is a basic outline of estimating the material cost

1. Catalog all the raw materials required from all the drawings.

2. Calculate the amount of material required for each cataloged raw material.

3. Total common materials, gauges and sizes to come up with total requirements

4. Sum all the weights with the requirements

5. Obtain supplier pricing

6. Total costs

This is just a high level summary of calculating material costs.  We will investigate calculating volumes, lengths and other type of raw material calculations.

MIE Solutions provides software resources to help you manage your direct and indirect costs throughout the product lifecycle from quoting and estimating, job costing to invoicing.

http://mie-solutions.com/mie/index.php/MIE-QuoteIt-Quoting-and-Estimating-Software/mie-quoteit.html