Cost Analysis and Estimating for Engineering and Management / Edition 1|Hardcover

Product Details

ISBN-13:	2900131421270
Publisher:	Pearson
Publication date:	09/08/2003
Edition description:	Subsequent
Pages:	600
Product dimensions:	6.90(w) x 9.20(h) x 1.40(d)

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This first edition of Cost Analysis and Estimating for Engineering and Management provides the latest principles and techniques for the evaluation of engineering design. The theme for the book begins with four chapters devoted to an analysis of labor, material, accounting, and forecasting. In the next four chapters estimating is developed, and methods, operations, and product chapters are given. With those chapters understood, attention moves to Chapters 9 and 10, "Cost Analysis and Engineering Economy." Chapter 11, "The Enterprise, Entrepreneurship, and Imaginamachina," concludes the book, and it introduces principles that deal with bringing inventions to the marketplace. Wise and calculated risk taking for the entrepreneur (read engineer and manager) are important to the broader understanding of engineering for students. The organization of this book develops these principles in a systematic way.

With increasing importance of design over rote skills in contemporary engineering courses, this book can be used for a variety of teaching situations: for lecture only, for lecture with a laboratory menu, or for professional mentoring with business, and developed field trips. Courses that connect to on-line live or delayed video instruction can use this book, as the authors have personal experience with these delivery modes. Furthermore, lifelong learning programs for the professional in either formal or informal settings can use the book.

Academic requirements for this book/course may vary, and we believe that the book is suitable for a number of teaching approaches. The book has been written to appeal to engineering/management/technology settings. The student needs amathematical maturity of algebra and introductory calculus. Typically, this book is used in the later college periods, and sometimes it coincides with the capstone course or other summary courses that occur in the final semesters. It is also suitable for graduate level courses in engineering/technology and management.

The instructor will notice Internet requirements that search for information and apply it in practical context. We provide Internet addresses for numerous assignments. (Regrettably, these addresses may change from time to time. Fortunately, many students are adept at finding their own way around the Internet.) In the interactive environment of teaching, this book is a part of modern courseware. Word processing and spreadsheet skills are assumed, and some CAD ability is always helpful. The student must have access to a computer, and system requirements would be typical of more advanced personal or college Pentium computers.

Various academic levels, either undergraduate or graduate, and backgrounds are appropriate and the instructor will find that this book is fitting for a variety of teaching styles. The authors have attempted to involve the instructor in the leadership of many exercises, calling on you, the instructor, to localize the assignments to your needs.

The book has more material than can be covered in one semester or quarter, and thus chapters can be chosen to meet the objectives of each class. Chapter order can be adjusted. For example, if the students already have an understanding of statistics, then Chapter 5 material can be excluded. Other sections can be dropped depending on student preparation and course objectives. Now and then the term "optional" is used with sectional material, and the instructor can either appropriately overlook that section or include it for enriching purposes. The instructor will find that the book is versatile.

This book has a range of difficulty for Questions for Discussion, Problems, Challenge Problems, Practical Applications, and Case Studies. Throughout the book, the authors have attempted to give the instructor the opportunity for outcomes-evaluation of student work with these many exercises.

There are 128 Questions for Discussion in the 11 chapters. They are qualitative and require back reading and a response of a few sentences for a thoughtful reply.

We believe cost analysis and estimating to be a problem-solving activity; therefore, many of the 245 Problems and 65 Challenge Problems request computations or sketches. Whenever the student is asked to set up and solve open-ended problems, much learning occurs. Indeed, some problems may have several appropriate solutions, and that depends on the assumptions and the route for the solution. This paradigm is instructive in a broader engineering context.

The problems have varying levels of difficulty. We want the Problems and the Challenge Problems to be tractable, either with calculator or spreadsheet, where the emphasis is on teaching concepts. It is not our desire to cause excessive computation, which is the nature of cost analysis and estimating problems. Thus, this book ignores software data and encyclopedias that are found on the Internet for estimating designs. Those software applications restrict the learning of principles. Nor do we give much attention to the minutia of extensive design practices, as those temporal trade details can be learned on the job, if necessary.

There is an end-of-chapter section that we call the Practical Application. The purpose of the Practical Application is to uncouple the student from books, libraries, and the classroom. As will be seen throughout the book, Practical Applications introduce the student to experiences in the real world. For example, it encourages field trips and communication with engineers, technologists, and management professionals. The instructor will appreciate this experiential approach, allowing him or her to use Practical Applications in exciting ways.

The end-of-chapter Case Studies are open ended, perhaps having several solutions. Students are often disturbed by this peculiarity, but instructors recognize cost analysis and estimating courses are unlike calculus courses with their singularity of correct answers.

The book contains 21,Picture Lessons. They describe important historical contributions of engineering. It is essential that students have an appreciation of the grand heritage and the remarkable two centuries of technological achievement of our profession. Selection of some of the Picture Lessons was from "The 20th Century's Greatest Engineering Achievements," a collection identified by the National Academy of Engineering.

For the instructor, a comprehensive Solution's Manual and CD is available. Additional PowerPoint helps are included. This CD can be requested from the Prentice Hall college representative or from Dr. Timothy McLaren.

The authors are grateful to many people. Their advice and information has made this a much better book. For in writing a book of this magnitude, the authors are aware that friends and colleagues are hidden, but they are very important advisers. We are indebted to the following: Lawrence E. Carlson and Ross Corotis of the University of Colorado, Boulder; Rodney Ehlers, Boulder, Colorado; Stephen Burish; Boulder, Colorado; Lynne E. Lyell, Fort Collins, Colorado; Charles W Stirk, Susannah Ferguson, and Qin Liu of CostVision, Boulder, Colorado; Michael Usrey, Boulder, Colorado; Edward Lyell, Adams State College, Alamosa, Colorado; Donald E. Forkner, Storage Technology Corporation, Louisville, Colorado; Mark Ostwald, Fish and Wildlife Service, Lacey, Washington; Mark Willcoxon, Coors Engineering, Golden, Colorado; Kurt Mackes, Colorado State University, Fort Collins, Colorado; Roger Eiss, Vancouver, Washington; Kevin Kilty, Vancouver, Washington; and Jack Swearengen, Santa Rosa, California.

The names used in the Problems and Case Studies are of real people, and they are mentioned because of our sincere regard for their contribution and friendship.

PHILLIP F. OSTWALD
TIMOTHY S. MCLAREN

	Preface	xv
1	Importance	1
1.1	Engineering and Design	1
1.2	Economic Evaluation	7
1.2.1	Who Uses Economic Evaluation?	8
1.2.2	Reasons for Economic Evaluation	9
1.3	Strategies for the Enterprise	10
1.3.1	Traditional Business	13
1.3.2	High-Tech Business	13
1.4	Information	15
1.5	Domestic and International Business	16
1.6	International System of Units	19
1.7	A Look at the Book	21
	Summary	23
	Questions for Discussion	24
	Problems	24
	Challenge Problems	26
	Practical Application	27
	Case Study: Professor Jairo Munoz	28
2	Labor Analysis	29
2.1	Background	29
2.2	The Mythical Man-Hour	36
2.3	Time	36
2.3.1	Ergonomics	37
2.3.2	Fundamentals of Time Study	37
2.3.3	Fundamentals of Work Sampling	46
2.3.4	Labor-Hour Reports	52
2.3.5	Other Methods for Determining Time	54
2.4	Wage and Fringe Rates	57
2.4.1	Wage-Only Method	59
2.4.2	Gross Hourly Cost	60
2.5	Joint Labor Cost (Optional)	64
2.6	Learning	66
	Summary	67
	Questions for Discussion	67
	Problems	68
	Challenge Problems	74
	Practical Application	75
	Case Study: The Endicott Iron Foundry	76
3	Material Analysis	77
3.1	Background	77
3.2	Material	80
3.3	Shape	83
3.4	Cost	92
3.5	Material Cost Policies	93
3.5.1	Specification	93
3.5.2	Policies for Evaluating Commodity Materials	96
3.5.3	Policies for Evaluating Contractual Materials	96
3.5.4	Policies for Evaluating Material from Inventory	97
3.6	Joint Material Cost (Optional)	103
	Summary	108
	Questions for Discussion	109
	Problems	110
	Challenge Problems	116
	Practical Application	121
	Case Study: Design for Runner System	121
4	Accounting Analysis	123
4.1	Business Transactions	124
4.2	Conventions	125
4.3	Chart of Accounts	129
4.4	Structure of Accounts	131
4.5	Understanding the Balance-Sheet Statement	135
4.6	Understanding the Profit-and-Loss Statement	136
4.7	Depreciation	138
4.7.1	Background	139
4.7.2	Purpose of Depreciation	140
4.7.3	Property Classification for Depreciation Methods	140
4.7.4	Methods of Calculating Annual Depreciation Amount	141
4.8	Budgeting	149
4.8.1	Types of Budgets and Relating Cost Accounts	149
4.8.2	Budgets for Overhead Calculation	151
4.9	Overhead	154
4.9.1	Importance	155
4.9.2	Traditional Methods	155
4.9.3	Allocation Methods	156
4.9.4	Methods of Direct Labor Hours and Dollars	158
4.9.5	Productive Hour Cost Rate Principles	160
4.9.6	Activity-Based Costing Principles	163
4.10	Job and Process Accounting and Variance Procedures (Optional)	164
	Summary	169
	Questions for Discussion	169
	Problems	170
	Challenge Problems	177
	Practical Application	180
	Case Study: Machine Shop	180
5	Forecasting	185
5.1	Graphic Analysis of Facts	185
5.2	Least-Squares and Regression (Optional)	193
5.2.1	Least-Squares	193
5.2.2	Confidence Limits for Average Values and Prediction Limits for Individual Values	196
5.2.3	Curvilinear Regression and Transformation	201
5.2.4	Correlation	205
5.2.5	Multiple Linear Regression	207
5.3	Time-Series Models (Optional)	210
5.4	Cost Indexes	215
5.5	Calculation, Interpretation, and Unintended Consequences	221
	Summary	223
	Questions for Discussion	223
	Problems	224
	Challenge Problems	232
	Practical Application	235
	Case Study: Forecasting Production Quantity and Budget Requirements for a Gas Engine	235
6	Estimating Methods	239
6.1	Estimating for the Enterprise	239
6.2	Universal Methods	242
6.2.1	Opinion	242
6.2.2	Conference	242
6.2.3	Comparison	243
6.2.4	Unit	245
6.3	Operation Methods	247
6.3.1	Cost- and Time-Estimating Relationships	247
6.3.2	Performance Time Data Algorithm	249
6.4	Product Methods	256
6.4.1	Learning	256
6.5	Project Methods	262
6.5.1	Power-Law-and-Sizing CERs	262
6.5.2	Other CERs (Optional)	264
6.5.3	Factor Method	266
6.6	Advanced Approaches (Optional)	273
6.6.1	Expected Value	273
6.6.2	Range	276
6.6.3	Percentile	279
6.6.4	Monte Carlo Simulation	281
6.6.5	Single-Value or Probability-Distribution Comparisons?	284
	Summary	285
	Questions for Discussion	286
	Problems	287
	Challenge Problems	293
	Practical Application	296
	Case Study: Industrial Process Plant Project Cost	296
7	Operation Estimating	297
7.1	Background	298
7.2	Manufacturing: What It Is, What It Does, and What It Is Not	300
7.3	Classic Operations Analysis (Option 1)	304
7.4	Contemporary Operations Analysis (Option 2)	312
7.4.1	Pinion Operation 10	320
7.4.2	Length of Cut Calculation	321
7.4.3	Pinion Operation 20	323
7.4.4	Pinion Operation 30	324
7.4.5	Pinion Operation 40	327
7.5	Tool Cost	329
7.6	Operation Cost	334
7.6.1	Batch Manufacturing	334
7.6.2	Flow-Line Manufacturing (Optional)	335
	Summary	340
	Questions for Discussion	340
	Problems	341
	Challenge Problems	345
	Practical Application	349
	Case Study: Estimating a Stainless-Steel Part	349
8	Product Estimating	351
8.1	Background	351
8.2	Estimating Engineering Costs	356
8.3	Information Required for Product Estimating	358
8.3.1	Bill of Material (BOM)	359
8.4	The Product Estimate	361
8.4.1	Productive Hour Cost Model	362
8.4.2	Activity-Based Costing Model (Optional)	365
8.4.3	Learning Model (Optional)	368
8.5	Extensions for Learning Model (Optional)	371
8.5.1	Follow-On Production	371
8.5.2	Engineering Change Order	374
8.5.3	Break-Even Analysis	377
8.6	Pricing Principles	378
8.6.1	Opinion, Conference, and Comparison	380
8.6.2	Markup on Cost	380
8.6.3	Contribution	382
8.6.4	Price-Estimating Relationships	382
8.7	Basic Contract Types (Optional)	384
8.7.1	Fixed-Price Arrangements	385
8.7.2	Cost-Reimbursable Arrangements	386
8.8	Benchmarking and Competitive Analysis	387
8.9	Trends in Product Cost Estimating (Optional)	394
8.9.1	Designing, Estimating, and Producing in a Global Economy	394
	Summary	395
	Questions for Discussion	396
	Problems	397
	Challenge Problems	402
	Practical Application	405
	Case Study: Unijunction Electronic Metronome	406
9	Cost Analysis	409
9.1	First Principles for Tradeoff Studies	409
9.2	Cash Flow	413
9.2.1	Taxation Effects on Cash Flow	414
9.2.2	Inflation or Deflation Effects on Cash Flow	416
9.3	Break-Even Models	420
9.3.1	Linear Cost Case	422
9.3.2	Semifixed Cost Case (Optional)	426
9.3.3	Nonlinear Cost Case	428
9.4	Life Cycle Cost (Optional)	438
	Summary	444
	Questions for Discussion	445
	Problems	445
	Challenge Problems	452
	Practical Application	454
	Case Study: Optimal Injection-Molding Tool Cost	454
10	Engineering Economy	457
10.1	Importance	457
10.2	Average Annual Rate-of-Return Methods	459
10.3	Payback-Period Method	460
10.4	Time-Value-of-Money Methods	462
10.4.1	Net-Present-Worth Method	464
10.4.2	Net-Future-Worth Method	465
10.4.3	Net-Equivalent-Annual-Worth Method	465
10.4.4	Rate-of-Return Method	466
10.4.5	Comparison of Methods	468
10.4.6	Standard Approaches to Engineering-Economy Methods	469
10.5	Advanced Applications (Optional)	471
10.5.1	Contexts of "Interest" in Engineering Economy	471
10.5.2	Minimum Attractive Rate of Return	474
10.5.3	Comparison of Alternatives	474
10.5.4	Replacement	479
10.5.5	Taxation Effects of Engineering Projects	484
	Summary	489
	Questions for Discussion	490
	Problems	490
	Challenge Problems	499
	Practical Application	500
	Case Study: Seasonal Production	500
11	The Enterprise, Entrepreneurship, and Imaginamachina	503
11.1	The Enterprise	504
11.2	Entrepreneurship	505
11.2.1	Inventors and Innovators	506
11.3	Designing for Profit	508
11.4	Designing for Manufacture	511
11.5	Self-Manufacture or Purchase?	513
11.6	Enterprise Planning	516
11.6.1	Assessment and Due Diligence	522
11.7	Financing and Enterprise Funding (Optional)	523
11.7.1	Raising Money	523
11.7.2	Stock	524
11.7.3	Debt	527
11.7.4	Bonds	528
11.7.5	Alliances	532
11.7.6	Offering	533
11.8	Legal Reminders (Optional)	534
11.9	Ethics and Engineering	535
	Summary	536
	Questions for Discussion	536
	Problems	537
	Challenge Problems	541
	Practical Application	545
	Case Study: Round Plate Inc.	545
Appendix 1	Values of the Standard Normal Distribution Function	549
Appendix 2	Values of the Student t Distribution	550
Appendix 3	10% Interest Factors for Annual Compounding Interest	551
Appendix 4	20% Interest Factors for Annual Compounding Interest	552
Appendix 5	Values of Learning Theory	553
	Selected Answers	555
	Bibliography	561
	Index	563

Preface

This first edition of Cost Analysis and Estimating for Engineering and Management provides the latest principles and techniques for the evaluation of engineering design. The theme for the book begins with four chapters devoted to an analysis of labor, material, accounting, and forecasting. In the next four chapters estimating is developed, and methods, operations, and product chapters are given. With those chapters understood, attention moves to Chapters 9 and 10, "Cost Analysis and Engineering Economy." Chapter 11, "The Enterprise, Entrepreneurship, and Imaginamachina," concludes the book, and it introduces principles that deal with bringing inventions to the marketplace. Wise and calculated risk taking for the entrepreneur (read engineer and manager) are important to the broader understanding of engineering for students. The organization of this book develops these principles in a systematic way.

With increasing importance of design over rote skills in contemporary engineering courses, this book can be used for a variety of teaching situations: for lecture only, for lecture with a laboratory menu, or for professional mentoring with business, and developed field trips. Courses that connect to on-line live or delayed video instruction can use this book, as the authors have personal experience with these delivery modes. Furthermore, lifelong learning programs for the professional in either formal or informal settings can use the book.

Academic requirements for this book/course may vary, and we believe that the book is suitable for a number of teaching approaches. The book has been written to appeal to engineering/management/technology settings. The student needs a mathematical maturity of algebra and introductory calculus. Typically, this book is used in the later college periods, and sometimes it coincides with the capstone course or other summary courses that occur in the final semesters. It is also suitable for graduate level courses in engineering/technology and management.