4.7. Steps in making a Cost Estimate
The cost of a new product may estimated by following the basic steps given below :
1. Make a complete and thorough analysis of the cost request to understand it fully.
2. Make an analysis of the part or product and make separate lists of standard parts and the parts to be fabricated within the plant.
3. Make a manufacturing process plan for the parts to be fabricated.
4. Determine the material costs for the standard and the fabricated parts.
5. Estimate the total production time for each operation listed in step 3.
6. Apply the labour and burden rates to each operation.
7. Add the material costs (step 4) and the labour and burden costs (step 6). This will give the total manufacturing cost.
8. Apply the profit factors to arrive at the selling price.