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Budgeting and Cost Estimation

Budgeting and Cost Estimation. Objective: Introduce some simple concepts regarding developing project budgets and cost projections. Total Project Costs. Total Project Cost = Direct Costs + Indirect Costs. Project Cost Components. Direct Costs

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Budgeting and Cost Estimation

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  1. Budgeting and Cost Estimation Objective: • Introduce some simple concepts regarding developing project budgets and cost projections

  2. Total Project Costs Total Project Cost = Direct Costs + Indirect Costs

  3. Project Cost Components • Direct Costs • Costs that are directly related to producing specific goods or services • Labor costs for project staff (including benefits) • Physical materials for project (supplies, equipment, etc.)

  4. Project Cost Components • Indirect Costs (Overhead Costs) • Costs for activities that benefit more than one project on an indeterminate basis • Facility costs (utilities, office computers, furniture, etc.) • Clerical staff • Administrative staff • General office supplies

  5. Estimating Project Cost Components • Direct Costs • Generally estimated and charged on an item by item basis • Indirect Costs • Generally estimated as a percentage of the direct costs

  6. Total Project Costs Total Project Cost = Direct Costs + Indirect Costs = Direct Costs + (Overhead Rate as %/100)*Direct Costs Or Total Project Costs = (1 + OH Rate%/100)*Direct Costs

  7. CDR - Budgeting Deliverable • You will evaluate two situations: i) Production of ‘to be assembled’ kits ii) Production of ‘fully assembled model’ kits • Both kits require the same parts and materials but different amounts of labor. i) Sorting parts into a kit ii) Sorting parts into a kit and assembling vehicle • The total anticipated cost for the assembly of 1,000 of each of these kits is to be estimated

  8. CDR-Budgeting Deliverable DOCUMENT YOUR DATA SOURCES AND/OR THE BASES FOR YOUR ESTIMATES

  9. Cost Estimation Data is On-line Labor (Sorting and Assembly) Costs • Determining Labor Costs for Sorting and Assembly: • Estimate the amount of labor (time) required to sort the parts into one kit (document how this number was obtained) • Estimate the amount of labor (time) required to assemble one kit (document how this number was obtained) • Determine: Pay-scale ($10/hr) and wages paid to employees • Add additional costs to the employer • Federal taxes (Social Security and Medicare) – 7.65% • Workmen’s compensation – 4.66% • Unemployment insurance - 0.1% • Long term disability insurance – 0.55% • Life insurance – 0.3% • Retirement contribution (401K) – 5% • Labor is a direct project cost

  10. Cost Estimation Data is On-line Materials (Parts) Costs • Parts Base Costs • K’Nex Parts (K’Nex web-site: http://www.knex.com/Shop) • Handout • Discount Rates • (% discount for quantity purchases of individual parts): • (100 pcs. - 5%), (500 pcs. - 10%), (1,000 pcs. - 15%), (5,000 pcs. - 20%) • Shipping and Handling • 5% of the total parts bill • Parts and Supplies are direct project costs

  11. CDR - Budgeting Deliverable • ‘To be assembled’ Project Cost • Parts + Labor + Indirect Costs • Indirect Costs = 1.25*(Parts + Labor) • ‘Fully assembled model’ Project Cost • Parts + Labor + Indirect Costs • Indirect Costs = 1.25*(Parts + Labor)

  12. CDR-Budgeting Deliverable DOCUMENT YOUR DATA SOURCES AND/OR THE BASES FOR YOUR ESTIMATES

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