Cost estimation may be defined as the process of forecasting the expenses that must be incurred to manufacture a product. These expenses take into consideration all expenditures involved in design and manufacturing with all the related service facilities such as pattern making, tool making as well as portion of the general administrative and selling costs. Cost estimates are the joint product of the engineer and the cost accountant.
Estimating is of great importance to a concern because it enables the factory owner to decide about the manufacturing and selling policies. It is obvious that too high of an estimate will not get any jobs for the firm quoting higher rates. Under estimating will put the engineering firm owner with a loss and may lead the engineering firms failure.
Therefore, estimation must be carried out accurately.
This design guideline covers the how to estimate capital investment, total product cost and economic and profitability analysis of cost estimating used in the typical process industries. It assists engineers to understand the basic design of cost estimation.
This design guideline covers the basic elements in the field of cost estimation in sufficient detail to allow an engineer to design a cost estimate with the suitable economic analysis; depreciation, net profit after tax, percentage of return of investment, payout period of project net present value with interest rate and cash flow, etc.
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