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

2. 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

3. 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

4. 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

5. 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

6. 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

7. Image Resources
Microsoft, Inc. (2008). Clip Art. Retrieved from