Cost analysis and estimating for engineering and management ch09

Cost Analysis and Estimating for Engineering and Management Chapter Cost Analysis © 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 Ch 9-1 Overview  Making Decisions (Tradeoffs)  Cash Flow Effects  Variations on Breakeven Analysis  Marginal Costs, Revenues, Profits  Life Cycle Costs © 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 Ch 9-2 Tradeoffs  Between/Among Design Alternatives  Proceed or Terminate  Make or Buy  Current or Proposed Product/Method  Often Before or During Design © 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 Ch 9-3 Product Development © 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 Ch 9-4 Tradeoff Study  Search for Alternatives  Determine Cost Estimates  Use Comparative Economy  Consider Constraints  Understand Irreducible Factors  Make Decisions © 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 Ch 9-5 Considering Cash Flow  Amount and Timing of Cash Coming In, From Sales Going Out, In Expenses  Also Depreciation Taxes Inflation/Deflation © 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 Ch 9-6 Taxation Effects on Cash Flow  Property Taxes Fixed, Comparatively Small  Sales Taxes Part of Material/Equipment Cost  Income Taxes Federal and Sometimes State © 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 Ch 9-7 Income Taxes  Proportion of Gross Income Taxable income = gross income - all expenses (except capital expenditures) - depreciation deductions  Net Income: Eq 9.1  What’s Left After Taxes Paid © 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 Ch 9-8 Graduated Tax Schedule If Income is Between $     The tax is  and $50,000 50,000 75,000 75,000 of the Amount Over 15% 7,500 + 25% 50,000 100,000 13,750 + 34% 75,000 100,000 335,000 22,500 + 39% 100,000 335,000 10,000,000 113,900 + 34% 335,000 10,000,000 15,000,000 3,400,000 + 35% 10,000,000 15,000,000 18,333,333 5,150,000 + 38% 15,000,000 6,416,667 + 35% 18,333,333 … $ © 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 Ch 9-9 Inflation/Deflation  “Value” of Dollar Changes Purchasing Power Quantized Through Indices  For Comparisons Over Long Times  Dr  Da  1 f © 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     n k Eq 9.3 Ch 9-10 Linear Breakeven © 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 Ch 9-33 Higher Order Solutions  To Fit Some Data Higher Order Polynomial Regression Is Needed  Marginal Cost/Revenue Determined Using Derivation of Regressed Models dRT dCT Rm  Cm  dn dn Eq 9.14 © 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 Eq 9.15 Ch 9-34 Nonlinear Cost & Revenue © 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 Ch 9-35 Marginal Plots © 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 Ch 9-36 Consequences  Minimum & Maximum Production Limits Marginal Profit = Zero dRT dCT dZ   0 dn dn dn  Eq 9.17 Optimum Sales Revenue, Production Cost, Profit But Not All at the Same Point © 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 Ch 9-37 Life Cycle Cost  Considers Costs for Entire Life Production / Acquisition Operation Maintenance / Upkeep Salvage Value / Disposal Recycling  Sum of All Costs from Concept Forward © 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 Ch 9-38 LCC Use  Used for Comparing Alternatives  Initial Cost and Operating /Use Cost  For Example High Cost, Reliable Item Low Cost, More Repair / Replacement Pay Now or Pay Later © 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 Ch 9-39 Estimates Required for LCC  Design  Capital Investment  Operation, Maintenance, Use  Replacement  Upgrading  Salvage © 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 Ch 9-40 Phases of Project Life © 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 Ch 9-41 End of Life  Worn Out Ceases Function  Loss of Profit Costs Too Much to Continue Operation  Obsolete Purpose No Longer Exists Superior Replacement Available © 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 Ch 9-42 Operating & Maintenance Costs  Need Operating Profile Maintenance Schedule Repair Data  Scheduled Maintenance (Preventative) SOH PM actions = PM cycle time © 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 Eq 9.18 Ch 9-43 Breakdown Costs  Mean Time Between Failure (MTBF)  Mean Time to Repair (MTTR) C cm SOH  MTTR C m  MTBF © 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 Eq 9.19 Ch 9-44 LCC Comparison © 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 Ch 9-45 Long Life Costs  Life in Multiple Years  Interest Rate Considerations Time Value of Money $1 in Years Is Worth Less Today  Impacts LCC Calculations  Covered In Chapter 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 Ch 9-46 Summary  Methods for Making Tradeoff Decisions  Considerations Involving Cash Flow  More Complicated Breakeven Models  Marginal Costs, etc  Limits on Production  Costs for Entire Life Cycle © 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 Ch 9-47 ... Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Ch 9-12 Linear Cost Case  Fixed Cost Is Constant for Period Does Not Change with Quantity  Variable Cost Is... NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Eq 9.4 Ch 9-11 Breakeven  How Many Must Be Sold to Recover Costs  Relationship Cost Price Volume... NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management     n k Eq 9.3 Ch 9-10 Calculating Cash Flow  Usually for Annual Basis  Only for Top/High Level