2-1 Basic Estimating Problem
Your company is installing a new piece of machining equipment and a robotic arm. Your manager asks for the project costs by cost category as well as the total amount. Given the following information, develop a base cost estimate by grouping costs by Equipment / Material (items 1 – 4), Installation / Labor (items 5 and 6), and Overhead (items 7-9).
1. Two pieces of equipment costing $ 15,000 and $ 35,000
2. Material required for electrical hook-up is 400 feet at $ 25 per foot
3. Controls for each piece of equipment are estimated at $ 600 each
4. Required start-up material is 3,700 pounds at $ 2.70 per pound
5. Company labor for installation requires two ...view middle of the document...
Based on recent experience the most likely price for the material is $0.30/lb. There are, however, price fluctuations over time based on suppliers used and structural steel availability. The most optimistic price estimate is $0.24/lb., and the most pessimistic estimate is $0.62/lb.
Use the three-point estimating process to determine the expected price of the material.
P= 0.62, O= 0.24 and ML= 0.30
O + ML + P / 3 = 0.24 + 0.30 + 0.62 / 3
1.16 / 3 = 0.39/lb.
O + 4ML + P / 6 = 0.24 + 1.20 + 0.62 / 6
2.08 / 6 = 0.34/lb.
(b) In addition to price fluctuations, it is also uncertain how much of structural steel will be required for the project. Design uncertainties and waste at the project site will affect the amount of structural steel actually needed. The most likely amount required is 40 tons. However, as little as 37 tons and as much as 49 tons might be required. One ton = 2000 lbs.
Use the three-point estimating process to determine to determine the expected amount of structural steel needed for the project?
O + 4ML + P / 6 = 37 + (4)40+ 49 / 6
246 / 6 = 41 tons
(c) Using the estimates from 1 & 2, what is the expected cost for structural steel over the life of the project?
41 * 2000 = 82,000 * .39 = $210,256.41
41 *2000 = 82,000 * .34 = $27,880.00
(d) Using the "Complex" three-point method, what is the expected cost for structural steel over the life of the project?
Expected cost: $0.34/lb * 82,000 lbs = $27,880
Most optimistic cost: $0.24/lb * 74,000 lbs = $17,760
Most pessimistic cost: $0.62/lb * 98,000 lbs = $60,760
The final estimated cost for the material is: (($17,760 + (4 * $27,880) + $60,760))/6 =$31,673
Expected price = $0.34 per pound
Expected usage = 41 tons
Expected total cost (simple method) = $28,153 ($27,880 using rounded numbers)
Expected total cost (complex method) = $31,856 ($31,673 using rounded numbers)
2-3 Contingency Allowance Problem
You are a project manager for Cowboy Bill's Sandwich shop, a wholesale sandwich maker, and have been asked to manage the introduction of a new buffalo sandwich. Listed below are the initial cost estimates for the ingredients and labor for 1000 sandwiches delivered to the retail...