Page 29 - MetalForming June 2015

additional cost of workers compensa- tion and employer’s FICA tax on that hourly rate premium. This will provide the full cost of each employee in a workcenter. Average the cost of the employees in the workcenter to derive a fully loaded labor rate for the work- center. This will be the first element of the fully loaded workcenter rate.
Also list the total straight-time and overtime hours worked by each employee in each workcenter. This includes employees who work in more than one workcenter. If you notice that the overtime worked in a workcenter exceeds 15 percent of the straight time worked, consider quoting the average fully loaded overtime rate for the work- center with each job that you estimate.
Significant overtime is difficult to factor into each quote as it never is clear at the time of quoting whether a job will be worked using straight-time hours, overtime hours or both. Quoting a fully loaded overtime rate will smooth out the variation in this timing of the work and related cost.
Many companies hire temporary workers throughout the year. Include temporary-labor hours in the average cost of fully loaded labor rates for the workcenter. The rate paid to the tem- porary agency already is fully loaded, making an analysis of the rate compo- nents unnecessary. Use weighted-aver- age hourly rates rather than simple average hourly rates to calculate the fully loaded rate for the workcenter, as temporary-labor rates tend to decrease the workcenter fully loaded labor rate.
Equipment Depreciation Cost
Equipment used regularly is never fully depreciated for the purpose of quoting work. While current tax laws provide for a 7-yr. depreciation life, quoting parts without considering the cost of equipment yields a competitive price that has little opportunity to return enough profit to set aside for buying new equipment.
Fully depreciated equipment should have a depreciation value based on equipment-replacement cost depreciated straightline over 7 yr. fac-
tored into the quote. This methodolo- gy, not generally accepted account- ing practices, is an appropriate approach to costing equipment for all quotes.
Depreciation cost can be quoted by labor hour, by machine hour or by a measure such as units produced. Com- panies must relate how they quote and convert cost to the quoting factor. For most quotes, hourly rates per work- center are calculated to determine cost per finished unit produced. Compa- nies that run machinery partially or mostly unattended quote machine hours in calculating equipment cost per finished part. Process-industry companies often quote pounds or other units of measure based on process-flow cost.
Overhead Allocation
After calculating all labor and equip- ment costs, the remaining costs are over- head. Overhead costs include manufac- turing overhead, selling overhead, and general and administrative overhead.
Companies can add to these cate- gories based on the specifics of their business. Some companies can include warehouse overhead or engineering overhead to better cost significant activities in the business. Not all cate- gories apply to products that do not include these activities in some aspect of their production.
Costs are variable, fixed or semi- variable. Variable costs align with the revenue of the business.
For example, material costs typical- ly vary directly with revenue. Because rent does not change with the volume of business done, it is fixed. Utilities are semi-variable with a portion varying with the amount of factory activity, while utility costs are fixed for heating and air conditioning the offices of a company.
The direct cost of manufacturing, mostly materials, is costed in the bill of materials for a part. All other costs often are rolled into the cost of a labor hour. Using a spreadsheet to show whether all other costs are manufac- turing overhead, selling overhead, or
www.metalformingmagazine.com
MetalForming/June 2015 27