Chapter9.

Cost estimation in casting

Cost is defined as an amount that has to be paid or given up in order
to get something. In business, cost is usually a monetary valuation of
(1) effort, (2) material, (3) resources, (4) time and utilities consumed,
(5) risks incurred, and (6) opportunity forgone in production and
delivery of a good or service
-Cost may be divided in to fixed and variable costs:-
Fixed costs-
Those where amounts can not be changed in the short run (e.g.
building mortgage, building heat, equipment, insurance costs, bond
interest);
Variable costs-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, labor).
 Cont’d
-Economic cost is the combination of losses of any goods that have a value
attached to them by any one individual. Economic cost is used mainly by
economists as means to compare the prudence of one course of action with
that of another. ... Economic cost differs from accounting cost because it
includes opportunity cost.
DIFFERENT WAYS TO CATEGORIZE COSTS
-Fixed and Variable Costs. ...
-Direct and Indirect Costs. ...
-Product and Period Costs.
-Other Types of Costs. ...
-Controllable and Uncontrollable Costs— ...
-Out-of-pocket and Sunk Costs— ...
-Incremental and Opportunity Costs—
-Imputed Costs—
-Price is what you pay for goods or services you acquire; Cost is the amount
of inputs incurred in producing a product and Value is what goods or
services pay you i.e. worth. 2. Price and costs are calculated in numerical
terms.
Cont’d
-Cost Accounting is a business practice in which we record, examine,
summarize, and study the company's cost spent on any process, service,
product or anything else in the organization. ... Such financial statements
and ledgers give the management visibility on their cost information.
Cost accounting is a facet of management accounting that determines the
actual cost associated with manufacturing a product or providing a service
by looking at all expenses within the supply chain. It is done for the
purpose of budget preparation and profitability analysis.
Types of costs in accounting-
These are the costs directly related to producing, acquiring and selling the
company's products. They include things like labour costs and
electricity costs. There are mainly four types of cost accounting:
standard cost accounting, activity based accounting, lean accounting and
marginal costing.
 Cont’d
Project Cost is the total funds needed to complete the project or work that
consists of a Direct Cost and Indirect Cost. The Project Costs are any
expenditures made or estimated to be made, or monetary obligations
incurred or estimated to be incurred to complete the project which are
listed in a project baseline.
-In project management, direct costs are expenses billed exclusively
to a specific project are included. They can include project team
wages, the costs of resources to produce physical products, fuel for
equipment, and money spent to address any project-specific risks.
3 Project cost estimation elements:-
- Projects and other undertakings require cost estimation to determine
resource requirements. Of course, estimates are not definite and their
accuracy depends on the project stage in which they are undertaken
and the sources of data. Nonetheless, there are three types of cost
estimation classified according to their scope and accuracy. These are
(1) order of magnitude estimate; (2) budget estimate; and (3) definitive
estimate.
 Cont’d
Formula for cost-
It is very simple and it is calculated by dividing the total cost of production
by the number of goods produced. where, Average fixed cost = Total
fixed cost/ Quantity of units produced. Average variable cost = Total
variable cost/ Quantity of units produced.
Cost method-The cost method is a type of accounting used for
investments. ... This method is used when the investor exerts little or no
influence over the investment that it owns. In this case, the terminology of
“parent” and “subsidiary” are not used, unlike in the consolidation method.
 -MRP- A maximum retail price (MRP) is a manufacturer calculated
price that is the highest price that can be charged for a product sold in
India and Bangladesh. However, retailers may choose to sell products for
less than the MRP.
Maximum Retail Price Calculation Formula= Manufacturing Cost +
Packaging/presentation Cost + Profit Margin + CnF margin + Stockist
Margin + Retailer Margin + GST + Transportation +
Marketing/advertisement expenses + other expenses etc. ... Then MRP can
be fixed according according to above formula.
 Elements for Cost Estimating
-A cost is composed of three elements – Material, labour and Expenses. Each
of these three elements can be direct and indirect, i.e.,
direct materials and indirect materials, direct labour and indirect
labour, direct expenses and indirect expenses.
cost estimation is the iterative process of. developing an approximation of
the monetary resources needed to complete project activities. Project
teams should estimate costs for all resources that will be charged to the
project.
-Nonetheless, there are three types of cost estimation classified according
to their scope and accuracy. These are (1) order of magnitude estimate;
(2) budget estimate; and (3) definitive estimate
Critical for:
a) Determining whether to make an investment to provide a product for
the consumer market
b) Deciding if a company should quote on a product for sale to another
company
 Cont’d
-The most common way to estimate costs is to make a list of items you
need and add up their costs. Make sure you include all applicable costs,
such as equipment and parts, materials and supplies, labor, financing, fees
and licensing, transportation, and acquisition costs for land or facilities.
-A characteristic of cost estimates is that errors in estimating are
typically non symmetric because costs are more likely to be
underestimated than overestimated. Difficulties in developing cost
estimates arise from such conditions as one-of-a-kind estimates, resource
availability, and estimator expertise
Purpose of Estimating
1. Establish the bid price of a product for a quotation or contract.
2. Verify quotations submitted by suppliers;
3. Ascertain whether a proposed product can be manufactured and marketed
profitably;
4. Provide data for make-versus-buy decisions;
5. Help determine the most economical method, process, or material for
manufacturing a product;
6. Provide a temporary standard for production efficiency and guide operating
costs at the beginning of a project;
7. Help in evaluating design proposals.
 Cont’d
Preliminary Product Cost Estimates
• Often used to compare different concepts of product designs or
manufacturing processes
• Typically, this type of estimate is wanted almost immediately and there is
no time for a detailed analysis
Final Product Cost Estimates
-Includecosting of every part and subassembly going into a product;
-Include the results of detailed studies on the optimum manufacturing
processes and make-versus-buy decisions;
-When the product is released for production, information from the detailed
product cost estimate is directly used in establishing standard costs and
ordering necessary tools and equipment.
 Metal casting cost estimation
-As in much of manufacturing, the casting industry is in a state of flux with
competition keen and producers fighting for precious contracts;
- Casting industries and other primary component-makers using casting
remain deeply interested in best cost and delivery. But as the stakes ratchet up,
there is growing evidence that future success lies in the willingness of
suppliers—be they larger foundry operations or smaller investment, sand, and
die casting shops—to bring extra value to the quoting process and the
supplier-customer relationship.
-Over the years, casters have adopted a variety of practices for determining the
cost of parts;
-A number of successful foundries and diecasters use detailed in-house
spreadsheets that mirror their manufacturing processes and are built on
quantified historical knowledge collected over years of practice;
- Many others, however, use a more subjective approach that relies on
“general rules” and approximations, which simplify, or may even overlook,
important factors such as setup labor, energy overhead, and tool wear.
- As seen how reliance on inexact costing methods can lead to
misquoting and undesirable consequences.
 Cont’d

For example, inflated bids—created to cover unknowns—can result in unnecessarily high

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quotes and lost business; -Underbidding, which is also common, may produce wins but hurt
the organization in the long run by bleeding its bottom line. Given the current competitive
climate and basic business realities, there’s no room for sacrificing potential work or profit;
-Negative outcomes can be avoided if the “black art” of costing is replaced by more
quantitative methodologies: One design-for-manufacture approach is DFM Concurrent
Costing, a software tool developed.
-Using this systematic, science-based DFM method, casting operation managers/owners are
able to generate extremely accurate piece part and tooling cost estimates for designs.
-Every design project starts with a host of manufacturing and material choices. Should the
part or component be steel or alloy? What finish specs are required? Is machining, forging, or
casting most cost-effective? And for what quantities?
-The DFM tool can help fill in the blanks for the design in question.
-Using a guided series of questions, DFM then leads through a calculation of every aspect of
part cost, referencing information in the software’s machine library, materials database, and
machine/operator rate tables;
-Product life volumes can be adjusted to illustrate cost-per-part as production volumes shift;
- Product dimensions and tolerances can be altered, too, so that noteworthy cost implications
related to problems or design changes become clear and can be discussed.
 Data Structure-Data for foundry contains the general
structure of manufacturing/metallurgy department
Cost estimates for different sections
Labour Material Machine Bought Out Overhead
Labour Categories Ferrous Metals Assembly Adhesive Part Fringe Benefits
Non-Ferrous Metals Welding Bolt Mark-ups
General
Manufacturing Chemicals Plastic Fabrication Connector
Indirect Labour
Petroleum Products Boring Drilling & Electronic Cost
Foundry Reaming Component
Chemical Electrical Plastics Soldering & Brazing Washer Manufacturing
Burden
Tooling Materials Exhaust Systems Hose Clamp
Rubber & Plastics Fabrication
Elastomer Rubber Rubber Fabrication Nut
Plastics Soft Trim Fabrication Pin
Paper Materials Wiring Fabrication Retaining Ring

General Labour & Leathers Robots Retainer & Clip

Wiring Non-Metallic Inspection Equipment Rivet
Aluminium Foundry Textiles Test Equipment Screw
Applied Finishes Abrasive Finishing Shielding Component
Robots
Electrical Cleaning Equipment Spring
Tool-room Misc. Materials Heat Treating Stud
Source Country Painting Terminal 11
 Category of Ferrous Materials for casting

Cost can be estimated based on the materials to be cast as the cost of

casting for each material is different
• Alloy steel bar
• Carbon steel bar High Temperature steel bar
• Stainless Steel Bar
• Cast Iron
• Cast Steel
• Powdered Metal Ferrous
• Sheet steel
Note: Specific cost estimation on casting develops in lab preparation

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Some Details on Ferrous Metals

• Country of origin, currency
• Trade discount
• Reclaimed Scrap
• New alloy
• Melt temperature
• Thermal conductivity, etc.

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Machine Costs Data
Equipment Manufacturer Supplier Depreciation
Description
Date of Purchase Current Date Capital Cost Interest
Installation Cost Residual Cost Restricted Maintenance
Length
Restricted Width Floor space Lifetime Floor Space
Area
Insurance on Machine Electricity Gas Usage Tool
Usage
Uptime Interest on Manning Level Cleaning
Capital
Indirect Material Source Country Special Distance Between column x
Handling
Litre Shot Size Tonnage Dry Cycle Distance Between column y
Capacity
Lock pressure Max. Diameter Max. Weight In Screw Speed
Shot Weight

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Categories of Overheads
• Plant supervisor
• Casting cost calculation include:-
• Plant administrator Material Cost (a) Cost of material
• Plant engineer required; for casting is calculated as
• Quality control follows : (i) From the component
• Production control drawing, calculate the volume of material
• Laboratory required for casting. This volume
• Health department multiplied by density of material gives
• Maintenance the net weight of the casting.
example:- steel casting cost calculation:-
• Work safety Time how long it takes to fabricate a ton of metal on
• Plant security etc. the production line in hours. Multiply the total cost of
direct labor for an hour's production by the number of
hours required to take a ton of metal through
the fabrication process. The sum is the labor costs
for metal fabrication based on a ton of metal

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