project costs

Fixed Costs Those where amounts can not be
changed in the short run (e.g. building
mortgage, building heat, equipment,
insurance costs, bond interest)…
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)

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

Time Value of Money $1 on hand today is
worth more than $1 in future by
amount of interest it could earn
and inflation adjustments
Future Value of Present Money (with interest
compounded)
periodsnumbern
decimalerestinti
amountpresentp
valuefuturef
)i1(pf
r
u
n
ru
−=
−=
−=
−=
+= You have $100 and can
invest it at 10% per year
and invest for 3 years:
10.133)1.01(100f 3
u =+=
Therefore, the
opportunity cost of not
investing is $33.10
Example

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.

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

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
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
P=$100
F=$20,000/mo
V=$80

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.

CALCULATION CONSIDERING DESIRED PROFIT
Q = (F + desired profit) / (P - V)
In our example, if we
want to make $5000 profit:
P=$100
F=$20,000/mo
V=$80
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

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.

Cost of Welding
($/ft) Cost
incurred to make a weld
(includes joint prep,
consumables, labor,
overhead, pre- & post-weld
treatment, etc.)
• Used to compare cost
advantages of weld vs. Other
manufacturing processes
• Used to decide on the most
cost effective joint design or
most cost effective welding
process to use
• Used as a basis for
investment in new automated
equipment
Cost of Weldment
($/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

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

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”}
INDIVIDUAL PART OF
ESTIMATE
• Labor Costs
• Power Costs
• Post Weld Costs
• Overhead Costs

INDIVIDUAL PART OF
ESTIMATE
• Labor Costs
• Power Costs
• Post Weld Costs
• Overhead Costs
COST OF MATERIALS (CONSUMABLES)
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
Procedure

INDIVIDUAL PART OF
ESTIMATE
• Labor Costs
• Power Costs
• Post Weld Costs
• Overhead 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)
+ =
a) Calculate the theoretical weight of weld
metal required to fill the weld joint
b) Calculate the weight of filler actually
1) Estimating
Losses
2) Automated
Method
c) Calculate the electrode costs

INDIVIDUAL PART OF
ESTIMATE
• Labor Costs
• Power Costs
• Post Weld Costs
• Overhead Costs
Calculation of Weight of Filler
Metal Actually Consumed:
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 = 100
Tubular-flux Cored Electrodes For
∀• Flux Cored Arc Welding = 80-85% yield
∀• Cold Wire = 100%
Electrode Losses
(SUM)
Stub Losses
∀• 14” with 2” stub = 14% loss
Coating or Slag Losses
∀• Thinner coating E6010 = 10%
loss
∀• Heavy coating E7024 = 50%
loss
Spatter Losses
∀• Depends on technique, usually
= 5-15% loss
Wt Weldment (lbs) = total wt deposit (lbs) / (1- total electrode loss)
Wt Weldment (lbs) = total wt deposit (lbs) / {filler metal yield (%) / 100}
or
“Estimating Losses”
Calculate the theoretical weight of weld metal
Calculate the weight of filler actually
1) Estimating
Losses
2) Automated
Method
Calculate the electrode costs

INDIVIDUAL PART OF
ESTIMATE
• Labor Costs
• Power Costs
• Post Weld Costs
• Overhead Costs
Calculation of Weight of
Filler Metal Actually
Consumed:
“Automated Method”
(Example at right)
• Knowing type of wire
• Knowing diameter of
wire
• Knowing operating
current
Determine Wire Feed Speed From Graphs Determine length of wire per
weight (in/lb) - From Table
• Knowing type of wire
Knowing diameter of wire
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)
1) Estimating
Losses
2) Automated
Method
Wt Weldment (lbs)={wire feed (ipm) * Hrs of Run * 60 (min/hr)}/wire per wt (in/lb)

1) Estimating
Losses
2) Automated
Method
INDIVIDUAL PART OF
ESTIMATE
• Labor Costs
• Power Costs
• Post Weld Costs
• Overhead Costs
Weld Electrode Cost ($/ft) = {elect price ($/lb) * Wt Weld (lb/ft)}/filler yield (%)
Weldment Electrode Cost ($) = elect price ($/lb) * Wt Weldment (lbs)
Calculation of
Electrode Cost

INDIVIDUAL PART OF
ESTIMATE
• Labor Costs
• Power Costs
• Post Weld Costs
• Overhead Costs
COST OF MATERIALS
(FLUX AND SHIELDING)
Calculation of Flux Costs
Weld Flux Cost ($/ft)=flux price ($/lb) * Wt Weld (lb/ft) * flux ratio
Weldment Flux Cost ($)=Weld Flux Cost ($/ft) * feet of weld
Flux Ratio
•Sub Arc = 1-1.5 (approx. 1 lb flux/ 1 lb wire)
•Electroslag = 0.05-0.10
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)
Calculation of Miscellaneous Costs
Guide tubes Studs / Ferrules Spot-weld electrode

INDIVIDUAL PART OF
ESTIMATE
• 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

INDIVIDUAL PART OF
ESTIMATE
• Labor Costs
• Power Costs
• Post Weld Costs
• Overhead Costs
COST OF LABOR
(single greatest factor in
total cost of weldment)
Weld Labor ($/ft)={welder pay ($/hr)*Wt Weld (lb/ft)}/
{deposit rate (lb/hr)*OpFact(%)/100}
(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}
Deposition Rate

INDIVIDUAL PART OF
ESTIMATE
• Labor Costs
• Power Costs
• Post Weld Costs
• Overhead Costs
COST OF POWER DURING
WELDING
• Energy charge
• Fuel adjustment charge
• Taxes
• Demand charge (time of day)
• Power factor penalty
Power Source Efficiency (%)
See machine performance curves (see
attached)
Local Power Rate ($/kWh) includes:
Weld Power Cost ($/ft)={local power rate ($/kWh)*volts*amps*Wt Weld (lb/ft)}/
{1000*dep rate (lb/hr)*OpFact (%)*PowSource Eff (%)}

INDIVIDUAL PART OF
ESTIMATE
• Labor Costs
• Power Costs
• Post Weld Costs
• Overhead Costs
POST WELD COSTS
Final Machining
Grinding/Polishing
Heat Treating
Shot Blasting
Straightening
Inspection
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
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.

Welding Cost - Per Foot Analysis
Cost of Joint Prep ($/ft)
Cost of Weld Metal
Flux Cost
Gas Cost
Misc. guide tubes etc.
Labor Cost ($/ft)
Power Costs
Overhead Costs
TOTAL
Welding Cost - Per Piece Analysis
Base Material Cost ($/pc)
Cost of Joint Prep
Cost of Weld Metal
Flux Cost
Gas Cost
Misc. guide tubes etc.
Labor Cost ($/pc)
Power Cost
Post Weld Costs
Overhead Costs ($/pc)
TOTAL

project costs

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