Vanguard Software Corporation
Root > Vanguard Examples > Cost Modeling for Manufacturing Systems > Total Cost Analysis

Total Cost AnalysisView   

Overview: Cost Modeling for Manufacturing Systems (Example)

This example models the total cost a fictitious fabricated metals manufacturing facility from its launch through its expected close-down in 10 years. The model outputs a full Income Statement and Cash Flow Statement across all 10  years as well as the overall net present value (NPV) and internal rate of return (IRR) for entire operation.

The model was built using components. And, by using the check-boxes on the Inputs tab, a user can perform "what-if" analysis to determine which milling machine provides the greatest financial benefits to the facility.


Assumptions

Land:
Purchase price: $40,000
Expected selling price after 10 years: $110,000

Building:
Purchase price: $120,000
Expected selling price after 10 years: $80,000
Depreciation: 39-year real property

Equipment:
Computer-Controlled Milling Machine:
R1220
Purchase price: $90,000
Installation cost: $10,000
Expected selling price after 10 years: $10,000
Production volume: 9,500 units per year (Minimum); 10,000 units per year (Most Likely); 11,000 units per year (Maximum)
Electricity usage: $0.15 per unit
Depreciation: 7-year MACRS property

R2337
Purchase price: $210,000
Installation cost: $10,000
Expected selling price after 10 years: $20,000
Production volume: 14,000 units per year (Minimum); 15,000 units per year (Most Likely); 16,000 units per year (Maximum)
Electricity usage: $0.25 per unit
Depreciation: 7-year MACRS property

Jigs and Dies:
Purchase price: $12,000
Installation cost: $0
Life cycle: 5 years (re-purchased as necessary at same price)
Depreciation: 3-year MACRS property

Materials:
Material cost: $2.20 per unit

Labor:
Labor cost: $22,000 per year

Other:
Other miscellaneous cost: $2,500 per year

Product:
The product being produced is the T55 Metal Gear.
We assume that the company can sell everything it produces at a price of $15 per unit.

Corporate Finance:
Minimum acceptable rate of return (MARR): 18%
Marginal tax rate: 40%
Capital gains tax rate: 40%
The facility is self-financed.


Problem Data Reference: Park, C. S., "Comtemporary Engineering Economics", 3rd ed., Prentice-Hall, 2002.
Data for the R2337 milling machine, the T55 metal gear product, and all stochastic elements were created by Vanguard Software Corporate.

  Inputs:

Include Milling Machine R1220
Include Milling Machine R2337

  Outputs:

Net Present Value
IRR


  Update History:

Date PublishedSizePublisher ID
March 19, 2007 9:12:39 PM52K333924499ViewDownload
March 19, 2007 8:44:13 PM52K333924499ViewDownload