Costs

1. Costs

2. Those where amounts can not be changed in the short run (e.g. building mortgage, building heat, equipment, insurance costs, bond interest)… Fixed Costs Variable Costs Costs whose total amount goes up or down when volume goes up or down (also called - direct costs, incremental costs, or marginal costs), (e.g. raw materials, shielding gas, electrodes, some energy costs, labor)

3. Opportunity Costs Profits which a foregone choice of action would have earned but which are lost because another choice is made. ·        A person who keeps money in a mattress incurs opportunity costs - loss of interest - because of the decision ·        VW introduced rabbit - sold out immediately - loss opportunity cost of several million dollars because not enough supply ·        Cabbage Patch Kids ·        Tickle-me Elmo ·        Time value of money

4. $1 on hand today is worth more than $1 in future by amount of interest it could earn and inflation adjustments Time Value of Money Future Value of Present Money (with interest compounded) Example You have $100 and can invest it at 10% per year and invest for 3 years: Therefore, the opportunity cost of not investing is $33.10

5. Sunk Cost a) Money lost in bad investments (e.g. plant abandoned before production) b)      Money tied up in a plant where it could have earned higher return on some other venture.

6. BREAK EVEN ANALYSIS P x Q = F + (V x Q) → Q = F/(P-V) P = price per unit Q = quantity F = fixed costs V = variable costs per unit

7. BREAK EVEN ANALYSIS P x Q = F + (V x Q) → Q = F/(P-V) P=$100 F=$20,000/mo V=$80 P = price per unit Q = quantity F = fixed costs V = variable costs per unit Example We are making all welded bicycles. They sell at $100/bike. Material and labor costs are $80 per unit. Equipment and building mortgage per month is $20,000. What is the break-even quantity which must be sold each month? Q = $20,000/($100 - $80) Q = 1000 units

8. CONTRIBUTION TO OVERHEAD OR PROFIT Amount by which the selling price/unit exceeds the variable costs/unit: Contribution = (P-V) P=$100 F=$20,000/mo V=$80 Contribution = $20 Contribution offsets fixed costs until 1000 units are sold (break-even point). Profit begins after break-even point.

9. CALCULATION CONSIDERING DESIRED PROFIT Q = (F + desired profit) / (P - V) P=$100 F=$20,000/mo V=$80 In our example, if we want to make $5000 profit: Q = (20,000 + 5,000) / (100 - 80) = 1250 units CALCULATION CONSIDERING TAX Q = {F + (desired profit)/(1- tax rate)}/(P-V) If the tax rate is 40% Q = {20,000 + 5000/(1-0.4)} / (100 - 80) = 1417 units

10. CONTRIBUTION RATIO CR = {(P-V) X 100} / P P=$100 F=$20,000/mo V=$80 CR = {(100-80) X 100} / 100 = 20% Comparing contribution ratios of various products we produce allows us to select the items to “push” in sales.

11. Cost of Welding Cost of Weldment ($/ft) Cost incurred to make a weld (includes joint prep, consumables, labor, overhead, pre- & post-weld treatment, etc.) ·Used to compare cost advantages of weld vs. Other manufacturing processes ·Used to decide on the most cost effective joint design or most cost effective welding process to use ·Used as a basis for investment in new automated equipment ($/piece) Cost incurred to make entire structure (includes all of above plus summation of all the weldments and raw material costs) ·Used to bid on a welding job

12. Welding Procedure This is the starting point for cost estimating. Procedure should include: ·Joint details ·Welding process ·Type of filler ·Type of gas/fluxes ·Welding current ·Position (operator factor) ·Travel speed ·Post weld treatment

13. INDIVIDUAL PART OF ESTIMATE (Look at each item individually) ·Cost of Joint Prep ·Cost of Materials (Consumables) ·Cost of Materials (Flux & Shielding) ·Labor Costs ·Power Costs ·Post Weld Costs ·Overhead Costs

14. INDIVIDUAL PART OF ESTIMATE (Look at each item individually) ·Cost of Joint Prep ·        Cost of Materials (Consumables) ·        Cost of Materials (Flux & Shielding) ·        Labor Costs ·        Power Costs ·        Post Weld Costs ·        Overhead Costs COST OF JOINT PREPARATION Methods of Joint Prep Machined Joints - (most expensive) Flame or Plasma Cut Joints Square Butt w/o Surface Prep - (least expensive) A) Do cost analysis on several joint designs to minimize joint prep cost: Note: If a non-prequalified joint is used, you may incur the added cost of procedure qualification. B) Trade off reduced costs to prepare joint with amount of weld metal to fill joint. Example: A submerged arc joint can be flame cut (inexpensive) but may require a lot of weld metal to fill the joint (expensive). {see “cost of welding”}

15. INDIVIDUAL PART OF ESTIMATE (Look at each item individually) ·Cost of Joint Prep ·Cost of Materials (Consumables) ·        Cost of Materials (Flux & Shielding) ·        Labor Costs ·        Power Costs ·        Post Weld Costs ·        Overhead Costs COST OF MATERIALS (CONSUMABLES) Procedure a)     Calculate the theoretical weight of weld metal required to fill the weld joint b)     Calculate the weight of filler actually consumed (spatter etc. included) 1) Estimating Losses 2) Automated Method c)     Calculate the electrode costs

16. INDIVIDUAL PART OF ESTIMATE (Look at each item individually) ·Cost of Joint Prep ·Cost of Materials (Consumables) ·        Cost of Materials (Flux & Shielding) ·        Labor Costs ·        Power Costs ·        Post Weld Costs ·        Overhead Costs a)     Calculate the theoretical weight of weld metal required to fill the weld joint b)     Calculate the weight of filler actually consumed (spatter etc. included) 1) Estimating Losses 2) Automated Method c)     Calculate the electrode costs Calculation of Theoretical Weight of Deposit Wt Weld (lb/ft) = CSA (in2) * density (lbs/in3) * 12 (in/ft) Wt Weldment (lbs) = Wt Weld (lb/ft) * Total ft of weld (ft)

17. INDIVIDUAL PART OF ESTIMATE (Look at each item individually) ·Cost of Joint Prep ·  Cost of Materials (Consumables) ·        Cost of Materials (Flux & Shielding) ·        Labor Costs ·        Power Costs ·        Post Weld Costs ·        Overhead Costs Calculation of Weight of Filler Metal Actually Consumed: Calculate the theoretical weight of weld metal required to fill the weld joint    Calculate the weight of filler actually consumed (spatter etc. included) 1) Estimating Losses 2) Automated Method     Calculate the electrode costs “Estimating Losses” • Electrode Losses (SUM) • Stub Losses • · 14” with 2” stub = 14% loss • ·18” with 2” stub = 11% loss • ·28” with 2” stub = 7% loss • Coating or Slag Losses • ·Thinner coating E6010 = 10% loss • ·Heavy coating E7024 = 50% loss • Spatter Losses • ·Depends on technique, usually = 5-15% loss • Electrode Filler Metal Yield • Covered Electrode • ·      SMAW 14” manual = 55-65% yield • ·        SMAW 18” manual = 60-70% yield • ·        SMAW 28” automatic = 65-75% yield • Solid Bare Electrode For • ·        Submerged arc = 95-100% yield • ·        Electroslag = 95-100% yield • ·        GMAW = 90-95% yield • ·        Cold Wire = 100Tubular-flux Cored Electrodes For • ·        Flux Cored Arc Welding = 80-85% yield • ·        Cold Wire = 100% Wt Weldment (lbs) = total wt deposit (lbs) / (1- total electrode loss) or Wt Weldment (lbs) = total wt deposit (lbs) / {filler metal yield (%) / 100}

18. INDIVIDUAL PART OF ESTIMATE (Look at each item individually) ·Cost of Joint Prep ·        Cost of Materials (Consumables) ·        Cost of Materials (Flux & Shielding) ·        Labor Costs ·        Power Costs ·        Post Weld Costs ·        Overhead Costs Calculate the theoretical weight of weld metal required to fill the weld joint    Calculate the weight of filler actually consumed (spatter etc. included) 1) Estimating Losses 2) Automated Method     Calculate the electrode costs Calculation of Weight of Filler Metal Actually Consumed: “Automated Method” Determine Wire Feed Speed From Graphs Determine length of wire per weight (in/lb) - From Table ·Knowing type of wire Knowing diameter of wire (Example at right) ·Knowing type of wire ·Knowing diameter of wire ·Knowing operating current Determine Hours of Run (Operation) ·Use shift time if continuous weld, or ·Hours = feet of weld (ft) / travel speed (ipm) * 60 (min/hr) * 1/12 (ft/in) Wt Weldment (lbs)={wire feed (ipm) * Hrs of Run * 60 (min/hr)}/wire per wt (in/lb)

19. INDIVIDUAL PART OF ESTIMATE (Look at each item individually) ·Cost of Joint Prep ·        Cost of Materials (Consumables) ·        Cost of Materials (Flux & Shielding) ·        Labor Costs ·        Power Costs ·        Post Weld Costs ·        Overhead Costs Calculate the theoretical weight of weld metal required to fill the weld joint    Calculate the weight of filler actually consumed (spatter etc. included) 1) Estimating Losses 2) Automated Method   Calculate the electrode costs Calculation of Electrode Cost Weld Electrode Cost ($/ft) = {elect price ($/lb) * Wt Weld (lb/ft)}/filler yield (%) Weldment Electrode Cost ($) = elect price ($/lb) * Wt Weldment (lbs)

20. INDIVIDUAL PART OF ESTIMATE (Look at each item individually) ·Cost of Joint Prep ·Cost of Materials (Consumables) ·   Cost of Materials (Flux & Shielding) ·        Labor Costs ·        Power Costs ·        Post Weld Costs ·        Overhead Costs COST OF MATERIALS (FLUX AND SHIELDING) Calculation of Flux Costs Flux Ratio ·Sub Arc = 1-1.5 (approx. 1 lb flux/ 1 lb wire) ·Electroslag = 0.05-0.10 Weld Flux Cost ($/ft)=flux price ($/lb) * Wt Weld (lb/ft) * flux ratio Weldment Flux Cost ($)=Weld Flux Cost ($/ft) * feet of weld Calculation of Shielding gas and Backing gas Costs Gas Cost ($/ft)={gas price ($/ft3)*flow rate (ft3/hr)}/{Travel (ipm) *1/12(ft/in)*60(min/hr) Weldment Gas Cost ($) = Weld Gas Cost ($/ft) * feet of weld Or = {Gas price ($/ft3) * flow rate (ft3/hr) * weld time (min)} / 60 (min/hr) • Guide tubes Studs / Ferrules Spot-weld electrode

21. INDIVIDUAL PART OF ESTIMATE (Look at each item individually) ·Cost of Joint Prep ·Cost of Materials (Consumables) ·  Cost of Materials (Flux & Shielding) ·  Labor Costs ·        Power Costs ·        Post Weld Costs ·        Overhead Costs COST OF LABOR (single greatest factor in total cost of weldment) Operator Factor: percent of time that a welder is actually making a useful weld. ·Semi-automatic and automatic plants have higher operator factors ·Field welding / construction work with small welds in scattered locations have low operator factor ·Welding in the flat position has higher operator factor than horizontal, vertical, overhead: 1.Faster travel speed 2.Fewer defects / fewer repairs ·Use of fixtures, positioners, and handling equipment increases operator factor ·Slag chipping, electrode changes, moving from joint to joint all reduce operator factor

22. INDIVIDUAL PART OF ESTIMATE (Look at each item individually) ·Cost of Joint Prep ·Cost of Materials (Consumables) ·  Cost of Materials (Flux & Shielding) ·  Labor Costs ·        Power Costs ·        Post Weld Costs ·        Overhead Costs COST OF LABOR (single greatest factor in total cost of weldment) Deposition Rate (function of process and current) ·See graph attached, or ·Deposition rate (lb/hr)={wire speed (in/min)*60(ipm)}/{wire per wt (in/lb)*filler yield (%)/100} Weld Labor ($/ft)={welder pay ($/hr)*Wt Weld (lb/ft)}/ {deposit rate (lb/hr)*OpFact(%)/100}

23. INDIVIDUAL PART OF ESTIMATE (Look at each item individually) ·Cost of Joint Prep ·Cost of Materials (Consumables) ·  Cost of Materials (Flux & Shielding) ·Labor Costs ·Power Costs ·        Post Weld Costs ·        Overhead Costs COST OF POWER DURING WELDING Local Power Rate ($/kWh) includes: ·Energy charge ·Fuel adjustment charge ·Taxes ·Demand charge (time of day) ·Power factor penalty Power Source Efficiency (%) See machine performance curves (see attached) Weld Power Cost ($/ft)={local power rate ($/kWh)*volts*amps*Wt Weld (lb/ft)}/ {1000*dep rate (lb/hr)*OpFact (%)*PowSource Eff (%)}

24. INDIVIDUAL PART OF ESTIMATE (Look at each item individually) ·Cost of Joint Prep ·Cost of Materials (Consumables) ·  Cost of Materials (Flux & Shielding) ·Labor Costs ·        Power Costs ·Post Weld Costs ·Overhead Costs OVERHEAD COSTS ·Salaries: executives, supervisors, inspectors maintenance people, janitor, etc. (those costs which can not charge directly to weldment costs) ·Rent / Depreciation of plant ·Taxes ·Maintenance supplies and costs ·Utilities (not charged to weldment) i.e. light, plant heat, etc. ·Employee benefits ·Insurance POST WELD COSTS Final Machining Grinding/Polishing Heat Treating Shot Blasting Straightening Inspection Overhead cost ($/ft) = {overhead rate ($/hr)*Wt Weld (lb/ft)}/ {dep rate (lb/hr)*OpFact (%)} Overhead costs are usually apportioned pro rata among all work going through the plant and the overhead rate assigned.