Deck 11: Estimating Costs

Question 1

For cost estimation purposes, there are several elements of the first cost component P. List three of them.

Answer 1

Cost estimation is a managerial activity where the periodic and life costs are calculated or estimated for a complete project or a system. There are various classifications of these costs like direct or indirect cost, first cost or annual maintenance and operation cost, etc.
First cost is the initial capital investment cost. This cost is incurred at beginning of a project or a system. This cost is usually larger than other costs estimated. The three elements of first costs are as follows:
• The cost of equipment or machinery which is bought at the initial stage.
• The delivery cost of equipment or machinery.
• The cost incurred in installation of equipment or machinery.

Question 2

When competition is the dominant factor in pricing a product or service, what is the best cost estimation approach to use

Answer 2

Cost estimation is a managerial activity where the periodic and life costs are calculated or estimated for a complete project or a system. There are various classifications of these costs like direct or indirect cost, first cost or annual maintenance and operation cost, etc.
In a competitive market it is very difficult for any company to sell similar goods at a price higher than the price of competitive products. Therefore, companies have to keep in mind the price that consumer is already paying. Companies then go for top-down cost estimation technique. Here, they start with competitor's price as a input and then find cost estimates accordingly.

Question 3

Identify the following as elements of first cost or annual operating cost : ( a ) rect materials, ( b ) livery charges, ( c ) riodic repairs, ( d ) work and rebuild, ( e ) stallation cost, ( f ) uipment cost.

Answer 3

Cost estimation is a managerial activity where the periodic and life costs are calculated or estimated for a complete project or a system. There are various classifications of these costs like direct or indirect cost, first cost or annual maintenance and operation cost, etc.
First cost is the one-time cost which is incurred at the beginning of the project. It is non repetitive i.e. occurs only once in project life cycle. Annual costs are periodic and are incurred in every period which is mostly a year.
(a)
Direct material costs are periodic as they are imposed whenever there is need of purchase of raw material. So, it is an annual cost.
(b)
Delivery charge is associated with initial cost which is paid for delivery of equipment and machinery. It is part of first cost.
(c)
Periodic repairs are repair expense which are done annually in most of the cases e.g. annual maintenance contract cost. They are annual cost.
(d)
Rework and rebuild cost are not periodic but are repetitive and are incurred many times in complete project life cycle, SO they are part of annual cost.
(e)
Installation cost is associated with initial cost which is paid for installation of new cost and machinery. It is part of first cost.
(f)
Equipment cost are one-time cost of buying and procuring the equipment needed in project. It is non-periodic and non-repetitive, so is part of first cost.

Question 4

If the preliminary cost for a concrete block, reinforced steel frame aircraft hangar is estimated to be $98.23 per square foot, what is the estimated cost of a 50,000 ft 2 hangar

Question 5

Low, medium, and high cost ranges for a 30,000 ft 2 apartment building in ZIP code 79912 were estimated to be $3,111,750, $3,457,500, and $4,321,875, respectively. ( a ) at is the cost per square foot for the medium cost estimate ( b ) at is the percent increase between low and high cost estimates per ft 2

Question 6

Estimate the total cost of a house (from purchasing a lot to furnishing the house) ing the following estimates:

Question 7

The Department of Defense uses area cost factors (ACFs) compensate for differences in construction costs in different parts of the country and world. The ACF for Andros Island in the Bahamas is 1.70 while the ACF for Rapid City, South Dakota, is 0.93. If a cold storage processing warehouse costs $1,350,000 in Rapid City, what is the estimated cost of the same facility on Andros Island

Question 8

Preliminary cost estimates for jails can be made using costs based on either unit area (square feet) unit volume (cubic feet). If the unit area cost is $185 per square foot and the average height of the ceilings is 10 feet, what is the unit volume cost

Question 9

The unit area and unit volume total project costs for a library are $114 per square foot and $7.55 per cubic foot, respectively. On the basis of these numbers, what is the average height of a library room

Question 10

Equipment necessary to manufacture adjustable ball-lock pins for pulling two components together had a cost of $185,000 when the M S Equipment Cost Index was 1375.4. What is the cost estimate for a similar system when the index value is 1634.9

Question 11

In 1999, the Office of the Under Secretary of Defense projected that the ENR Building Cost Index (BCI) uld increase from its 1999 value of 3423 to 4098 in 2012. If the actual value in 2012 was 5167, what was the difference between the projected and actual BCI annual inflation rates from 1999 to 2012

Question 12

From historical data, you discover that the national average construction cost of middle schools is $10,500 per student. If the city index for Oklahoma City is 76.9 and for Los Angeles it is 108.5, estimate the total construction cost for a middle school of 800 students in each city.

Question 13

A consulting engineering firm is preparing a preliminary cost estimate for a design/construct project of a brackish groundwater desalting plant. The firm, which completed a similar project in 2003 with a construction cost of $30 million, wants to use the ENR construction cost index to update the cost. If the index value in 2012 was 9290, estimate the cost of construction for a similar-size plant in 2012.

Question 14

If the editors at ENR decide to redo the construction cost index so that the year 2003 has a base value of 100 instead of 6695, determine what the value was for 2011.

Question 15

An engineer who owns a construction company that specializes in large commercial projects noticed that material costs increased at a rate of 1% per month over the past 12 months. If a material cost index were created for that year with the value of the index set at 100 at the beginning of the year, what is the value of the index at the end of the year Express your answer to two decimal places.

Question 16

Omega electropneumatic general-purpose pressure transducers convert supply pressure to regulated output pressure in direct proportion to an electrical input signal. If the cost of a certain model was $328 in 2011 when the M S equipment index was at 1490.2, what was the cost in 2002 when the M S index value was 1104.2 Assume the cost changed in proportion to the index.

Question 17

The ENR construction cost index for New York City had a value of 12,381.40 when the values in Pittsburgh and Atlanta were 7341.32 and 4874.06, respectively. If a general contractor in Atlanta won construction jobs totaling $54.3 million, determine their equivalent total value in New York City.

Question 18

The ENR materials cost index (MCI) d a value of 2583.52 when the cost for cement was $95.90 per ton. If cement increased in price exactly in accordance with the MCI, what was the cost of cement per ton in 1913 when the MCI index value was 100

Question 19

The ENR 20-city construction common labor index had a value of 16,520.53 when the wage rate was $31.39 per hour. Assuming that labor rates increased in proportion to the common labor index, what was the common labor wage rate per hour in 1913 when the common labor index had a value of 100

Question 20

The cost of lumber per million board feet (MBF) s $464.49 when the value of the ENR materials cost index (MCI) s 2583.52. If the cost of lumber increased in proportion to the MCI, what was the value of the index when the cost of lumber was $400 per MBF

Question 21

A high pressure (1000 psi) ainless steel pump with a variable frequency drive is installed in a seawater reverse osmosis pilot plant that is recovering water from membrane concentrate at a rate of 4 gallons per minute (gpm). The cost of the pump was $13,000. Because of favorable results from the pilot study, the water utility wants to go with a full-scale system that will produce 500 gpm. Estimate the cost of the larger pump, if the exponent in the cost-capacity equation has a value of 0.37.

Question 22

The cost of a high-quality 250-horsepower compressor was $9500 when recently purchased. What would a 450-horsepower compressor be expected to cost if the exponent in the cost-capacity equation has a value of 0.32

Question 23

The variable frequency drive (VFD) r a 200 hp motor costs $20,000. How much will the VFD for a 100 hp motor cost if the exponent in the cost-capacity equation is 0.61

Question 24

The cost of a 68 m 2 falling-film evaporator was 1.65 times the cost of the 30 m 2 unit. What exponent value in the cost-capacity equation yielded this result

Question 25

Instead of using a cost-capacity equation for relating project size and construction cost, the Department of Defense uses Size Adjustment Factors (SAFs) at are based on Size Relationship Ratios (SRRs). For example, a SRR of 0.50 has a SAF of 1.04. Determine the value of the exponent in the cost-capacity relation for C 2 to equal 1.04 C 1 when the quantity Q²is 50% of Q 1.

Question 26

Reinforced concrete pipe (RCP) at is 12 inches in diameter has a cost of $12.54 per linear foot in Dallas, Texas. The cost for 24-inch RCP is $27.23 per foot. If the cross-sectional area of the pipe is considered the "capacity," determine the value of the exponent (to two decimal places) the cost-capacity equation that exactly relates the cost of the two pipe sizes.

Question 27

A 100,000 barrel per day (BPD) actionation tower cost $1.2 million when the Chemical Engineering plant cost index value was 394.3. Estimate the cost of a 300,000 BPD plant when the index value is 575.8, provided the exponent in the cost-capacity equation is 0.67.

Question 28

A mini wind tunnel for calibrating vane or hotwire anemometers cost $3750 when the M S equipment index value was 1104.2. If the index value is now 1520.6, estimate the cost of a tunnel twice as large. The cost-capacity equation exponent is 0.89.

Question 29

In 2011, an engineer estimated the cost for laser-based equipment to be $400,000. The engineer used the M S equipment index values of 1178.5 for 2004 and 1490.2 for 2011with the cost-capacity equation and an exponent value of 0.61. The original equipment had only one-fourth the capacity of the new equipment. ( a ) at was the cost of the original equipment in 2004 ( b ) the index continues to increase at the same annual rate as it did from 2004 to 2011for the next 5 years, estimate the cost of the same equipment in 2016.

Question 30

The equipment cost for removing arsenic from a well that delivers 800 gallons per minute is $1.8 million. If the overall cost factor for this type system is 2.25, what is the total plant cost expected to be

Question 31

A closed-loop filtration system for waterjet cutting industries eliminates the cost of makeup water treatments (water softeners, reverse osmosis, etc.) ile maximizing orifice life and machine performance. If the equipment cost is $225,000 and the total plant cost is $1.32 million, what is the overall cost factor for the system

Question 32

The equipment cost for a laboratory that plans to specialize in analyzing for endocrine disruptors, pharmaceuticals, and personal care products is $920,000. If the direct cost factor is 1.54 and the indirect cost factor is 0.49 (applied to equipment only), determine the expected cost of the laboratory.

Question 33

The Pavonka family is contracted to frame 32 wooden houses of the same design in a new subdivision of 300 homes. The fourth unit took 400 hours and the carpenter knows they cut about 10% off the time for each replication of the same design. Use the learning curve assumption of a constant decrease with each doubling of production to estimate past (units 1 and 2) d future completion times.

Question 34

The Department of the Navy estimates that the learning rate for shipbuilding is 80 to 85%. Assuming the 85% rate applies to nuclear submarines, how long should it take to build the 12th vessel, if the first one took 56 months to complete

Question 35

An engineer wants to predict the completion time per unit for KBR Construction to build 175 field-ready office/storage units in their plant. The Red Cross uses the units in international hunger and medical relief efforts. Use a spreadsheet to plot the learning curves on arithmetic and log-log scales for a 90% learning rate if the first-unit time to completion is 90 hours.

Question 36

An engineer has been asked to estimate the cost per unit for KBR Construction to build 175 field-ready office/storage units in their plant for use by the Red Cross. Use a spreadsheet to plot the learning curves on arithmetic and log-log scales for a 95% learning rate applied to costs if the first unit costs $3000.

Question 37

SIS Technologies currently allocates insurance costs on the basis of direct labor hours. If the direct labor hours for departments A, B, and C are expected to be 3000, 9000, and 5000, respectively, this year, determine the allocation to each department based on an indirect cost budget of $34,000.

Question 38

A city utility currently allocates costs associated with the maintenance shop and warehouse to pumping stations based on the number of the pumps the stations contain. However, a suggestion has been made to change the allocation basis to the number of trips service personnel make to each station because some stations have old pumps that require more maintenance. Information about the stations is shown in the table below. If the indirect cost budget is $1000 per pump, reallocate the budget to each station based on the number of service trips.

Question 39

The director of public works needs to distribute the indirect cost allocation of $1.2 million to the three branches around the city. She will use the information from last year to determine the rates for this year.

Question 40

The Mechanical Components Division manager asks you to recommend a make/buy decision on a major automotive subassembly that is currently outsourced for a total of $4.5 million this year. This cost is expected to continue rising at a rate of $200,000 per year. Your manager asks that both direct and indirect costs be included when in-house manufacturing (the make alternative) evaluated. New equipment will cost $3 million, have a salvage of $0.5 million and a life of 6 years. Estimates of materials, labor costs, and other direct costs are $1.5 million per year. Typical indirect rates, bases, and expected usage are shown below. Perform the AW evaluation at MARR 12% per year over a 6-year study period. Perform the analysis using ( a ) nd solution, and ( b ) spreadsheet.

Question 41

What is the activity and the cost driver for the baggage traffic basis

Question 42

Using the baggage traffic basis, determine the allocation rate using last year's allocation of $667,500 and distribute this amount to the hubs.

Question 43

What are the percentage changes in allocation at each hub using the two different bases

Question 44

An order-of-magnitude cost estimate should be accurate to within the following percentage of the actual cost:

A) 5%
B) 10%
C) 15%
D) 20%

Question 45

The total mechanical and electrical unit costs for a library are listed as $40 per square foot, while total project cost is estimated at $119 per square foot. Based on these values, the percentage of total costs represented by mechanical and electrical costs is closest to:

A) 21%
B) 29%
C) 34%
D) 38%

Question 46

In the bottom-up approach to cost estimating, the:

A) required price is an input variable.
B) cost estimates are an output variable.
C) required price is an output variable.
D) both ( a ) d ( b ) e correct.

Question 47

The cost of constructing an 8000 ft 2 warehouse was $400,000. The ENR construction cost index was 6770 at that time. The cost of constructing a similar building using an ENR index of 9088 is closest to:

A) less than $450,000
B) $537,000
C) $672,000
D) more than $700,000

Question 48

An assembly line robot arm had a first cost of $25,000 when the M S equipment cost index was 1201.9. If the robot cost increased exactly in proportion to the index, the value of the index if the robot arm now costs $29,860 is closest to:

A) less than 1000
B) 1006.3
C) 1245.8
D) more than 1250

Question 49

The cost for a 200-horsepower (hp) mp, with controller, is $22,000. The cost estimate of a similar pump of 300 hp capacity, provided the exponent in the cost-capacity equation is 0.64, is closest to:

A) $12,240
B) $28,520
C) $33,780
D) $39,550

Question 50

If the cost of an 8000-operation-per-second assembly line robot is $80,000 and the cost for one with twice the capacity is $120,000, the value of the exponent in the cost-capacity equation is closest to:

A) 0.51
B) 0.58
C) 0.62
D) 0.69

Question 51

The delivered equipment cost for setting up a production and assembly line for high-sensitivity, gas-damped accelerometers is $650,000. If the direct cost and indirect cost factors are 1.36 and 0.31, respectively, and both factors apply to delivered equipment cost, the total plant cost estimate is approximately:

A) $2,034,500
B) $1,735,500
C) $1,384,500
D) $1,183,000

Question 52

The equipment for applying specialty coatings that provide a high angle of skid for the paperboard and corrugated box industries has a delivered cost of $390,000. If the overall cost factor for the complete system is 2.45, the total plant cost is approximately:

A) $955,500
B) $1,054,400
C) $1,154,400
D) $1,544,400

Question 53

If the processing cost decreases by a constant 6% every time the output doubles, the slope parameter of the learning curve is closest to:

A) 0.009
B) 0.059
C) 0.089
D) 1.699

Question 54

The total plant cost for manufacturing CO₂warning devices that have a compact gas detector and a signaling unit is $1,154,400. If the overall cost factor for the plant was 2.61, the delivered equipment cost was closest to:

A) $442,300
B) $501,200
C) $593,700
D) $613,900

Question 55

The cost for implementing a manufacturing process that has a capacity of 6000 units per day was $550,000. If the cost for a plant with the capacity of 100,000 units per day is $3 million, the value of the exponent in the cost-capacity equation is closest to:

A) 0.26
B) 0.39
C) 0.45
D) 0.60

Question 56

The first golf-cart chassis off a new fabrication line took 24.5 seconds to paint. If during the first 100 units a learning rate of 95% is assumed, the paint time for unit 10 is closest to:

A) 20.7 seconds
B) 0.46 minutes
C) 2.75 seconds
D) 15.5 seconds

Question 57

A police department wants to allocate the indirect cost of speed monitoring to the three toll roads around the city. An allocation basis that may not be reasonable is:

A) miles of toll road monitored.
B) average number of cars patrolling per hour.
C) amount of car traffic per section of toll road.
D) cost to operate a patrol car.

Question 58

The IT department allocates indirect costs to user departments on the basis of CPU time at the rate of $2000 per second. For the first quarter, the two heaviest use departments logged 900 and 1300 seconds, respectively. If the IT indirect budget for the year is $8.0 million, the percentage of this year's allocation consumed by these departments is closest to:

A) 32%
B) 22.5%
C) 55%
D) not enough information to determine

Question 59

If engineering change order is the activity for an application of the ABC method of overhead allocation, the most reasonable cost driver(s) y be:
1 - number of changes processed
2 - size of the work force
3 - management cost to process the change order

A) 1
B) 2
C) 3
D) 1 and 3