Manufacturing Costs Computer Integrated Manufacturing © 2013 Project Lead The Way, Inc.

Influences of Cost Two Types of Cost Factors Affecting Costs Manufacturing Costs CIM Cost of Manufacturing Influences of Cost Two Types of Cost Fixed: Unchanging Rent, heat, light, etc. Variable: Changes with production rate Labor, raw material, energy, etc. Factors Affecting Costs Material goods Labor rate (wage) Time (urgency) Shipping Fixed Costs – periodic cost that remains (more or less) unchanged irrespective of the output level or sales revenue of a firm. Includes rent, lighting, and heating. Variable Costs – periodic cost that varies, more or less, in step with the output or the sales revenue of a firm. Such costs include raw material, energy usage, labor (wages), distribution costs, etc. Factors affecting costs are similar to everyday life. Material goods are market priced in manufacturing and everyday life. Limited supply of material and cost goes up. Labor rate varies by region and country. How quickly something is needed affects cost. Shipping costs vary based on method used and quantity shipped. Project Lead The Way, Inc. Copyright 2008

Material Goods Cost Machinery (including tools) Manufacturing Costs CIM Cost of Manufacturing Material Goods Cost Machinery (including tools) Machine may cost more but also produces more Raw materials costs vary by market When purchasing machinery, the key considerations are capacity objectives, process definition, machining methods, cost per component, tooling requirements, quality, automation, and tool life, among others. Project Lead The Way, Inc. Copyright 2008

Labor Cost Wages vary based on skill and experience Manufacturing Costs CIM Cost of Manufacturing Labor Cost Wages vary based on skill and experience Overtime is more expensive Value-added versus non-value-added tasks When hiring a labor force, the key considerations include experience v. desired wages, versatility of the individual, and ability to work in a variety of environments and with a variety of personalities. Value-added tasks can be defined as the difference between the price at which goods are sold and the cost of the materials used to make them; they are easily quantifiable. Non-Value-added tasks do not contribute to that for which the customer pays; while they can usually be eliminated without impairing a process, some of the "non-value" added tasks are necessary and should be performed to make sure they don't slow-down production. Project Lead The Way, Inc. Copyright 2008

Time Cost Customer deadlines must be met Manufacturing Costs CIM Cost of Manufacturing Time Cost Customer deadlines must be met Worker hours increase when production slows Materials wasted due to shelf life Time has many impacts. First, the customer may have a deadline for receiving the product. Also, employees required to operate the machinery may have to be paid extra if the process is slowed or delayed. In addition, some raw materials may have a low shelf-life. Project Lead The Way, Inc. Copyright 2008

Shipping Cost Cost per unit affected by mode Manufacturing Costs CIM Cost of Manufacturing Shipping Cost Cost per unit affected by mode Trains and boats cost less but are slower Distance to plant Shipping costs often affected by the speed at which product must be delivered or material goods must be received. Shipping by train or boat is less expensive per pound, but are slower. Plant location selection affects the shipping costs. Project Lead The Way, Inc. Copyright 2008

Image Resources Microsoft, Inc. (2008). Clip Art. Retrieved from http://office.microsoft.com/en-us/clipart/default.aspx