Cost models are a very complex set of equations that can be basically explain very simply, Rate X Usage. This explanation is a great training aid and helps win over skeptics.
This all boils down to RATE X USAGE. Pretty simple right. How can it be so simple? Let’s look an everyday application of this principle.
You want to paint your room a different color. You estimate the USAGE as 5 Gallons. You go to the store and you find the paint you want at $30 per Gallon (RATE). You know it should take a painter about 3 hours to complete (USAGE) and he charges $50 an hour (RATE).
|Material (Paint)||$30 / Gallon||5 Gallons||$150|
|Labor (Painter)||$50 / Hr||3 Hours||$150|
This works for much more complex models.
Net and Gross are USAGES and Material Cost per UoM is the Rate.
|Description||Gross Usage||Net Usage||UoM||Material Cost per UOM||Material Sub Total||Scrap Reclaim Rate||Scrap Credit||Total Material Cost|
Cycle Time is USAGE while Fixed, Variable, and Indirect are RATES.
|Description||Size||Cycle Time (hours/pc)||Fixed Rate
|Variable Rate ($/Hr)||Indirect
|Total Machine Cost ($/PC)|
|Injection Mold||50 Ton||0.0083||$4.00||$8.00||$15.00||$0.224|
This very simple explanation helps breakdown the walls with the skeptics.
Gerald (Jerry) Collins
Owner and Founder of Society of Cost Engineers