Problem 11.1
For cost estimation purposes, there are several elements of the first cost component P.
List three of them.
Problem 11.2
When competition is the dominant factor in pricing a product or service, what is the best
cost estimation approach to use?
Problem 11.3
Identify the following as elements of first cost or annual operating cost: (a) direct
materials, (b) delivery charges, (c) periodic repairs, (d) rework and rebuild,
(e) installation cost, (f) equipment cost.
Problem 11.4
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 ft2 hangar?
Problem 11.5
Low, medium, and high cost ranges for a 30,000 ft2 apartment building in zip code 79912
were estimated to be $3,111,750, $3,457,500, and 4,321,875, respectively. (a) What is
the cost per square foot for the medium cost estimate? (b) What is the percent increase
between low and high cost estimates per ft2?
Problem 11.6
Estimate the total cost of a house (from purchasing a lot to furnishing the house) using
the following estimates:
Cost Data House Data__________
Purchasing a lot = $2.50/ft2 lot size = 100 x 150 ft
Construction = $125/ ft2 livable space house size = 50 x 46, with 75% livable
Furnishings = $3000 per room number rooms = 6
Problem 11.7
The Department of Defense uses area cost factors (ACFs) to 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 the same facility on Andros Island?
Problem 11.8
Preliminary cost estimates for jails can be made using costs based on either unit area
(square feet) or 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?
Problem 11.9
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?
Problem 11.10
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?
Problem 11.11
In 1999, the Office of the Under Secretary of Defense projected that the ENR Building
Cost Index (BCI) would 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?
Problem 11.12
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.
Problem 11.13
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.
Problem 11.14
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.
Problem 11.15
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.
Problem 11.16
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.
Problem 11.17
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.
Problem 11.18
The ENR materials cost index (MCI) had 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?
Problem 11.19
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?
Problem 11.20
The cost of lumber per million board feet (MBF) was $464.49 when the value of the ENR
materials cost index (MCI) was 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?
Problem 11.21
A high pressure (1000 psi) stainless 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.
Problem 11.22
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.
Problem 11.23
The variable frequency drive (VFD) for 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?
Problem 11.24
The cost of a 68 m2 falling-film evaporator was 1.65 times the cost of the 30 m2 unit.
What exponent value in the cost-capacity equation yielded this result?
Problem 11.25
Instead of using a cost-capacity equation for relating project size and construction cost,
the Department of Defense uses Size Adjustment Factors (SAFs) that 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 C2 to equal 1.04C1 when the
quantity Q2 is 50% of Q1.
Problem 11.26
Reinforced concrete pipe (RCP) that 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 2 decimal places) in the cost-capacity equation that exactly relates the cost
of the two pipe sizes.
Problem 11.27
A 100,000 barrel per day (BPD) fractionation 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
cost when the index value is 575.8, provided the exponent in the cost-capacity equation is
0.67.
Problem 11.28
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.
Problem 11.29
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 2011
with 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) What was the cost of the
original equipment in 2004? (b) If the index continues to increase at the same annual rate
as it did from 2004 to 2011 for the next 5 years, estimate the cost of the same equipment
in 2016.
Problem 11.30
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?
Problem 11.31
A closed-loop filtration system for waterjet cutting industries eliminates the cost of
makeup water treatments (water softeners, reverse osmosis, etc.) while 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?
Problem 11.32
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.
Problem 11.33
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 father 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) and future completion times.
Problem 11.34
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?
Problem 11.35
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.
Problem 11.36
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.
Problem 11.37
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.
Problem 11.38
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 $1,000 per pump, reallocate the budget to each station based on
the number of service trips.
Station ID No. pumps Service trips/year
Stanton 5 190
Main 7 55
7th St 3 38
Northeast 4 104
Problem 11.39
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.
Direct Allocation
Miles Labor Last
Branch Driven Hours Basis Year___
North 350,000 40,000 Miles $300,000
South 200,000 20,000 Labor $200,000
Midtown 500,000 64,000 Labor $450,000
(a) Determine this year’s indirect cost rates for each branch. (b) Use the rates from last
year and records for this year to distribute the allocation for this year. How much of the
$1.2 million is actually distributed?
Records for This Year
Miles Direct Labor
Branch Driven Hours
North 275,000 38,000
South 247,000 31,000
Midtown 395,000 55,500
Problem 11.40
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) is 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) hand solution, and (b) a
spreadsheet.
Problem 11.41
Blue Sky Airways traditionally distributes the indirect cost of lost baggage to its three
major hubs using a basis of annual number of flights in and out of each airport. Last year
$667,500 was distributed as follows:
Hub Airport Flights Rate Allocation
DFW 110,000 $3/flight $330,000
YYZ 62,500 $3/flight 187,500
MEX 75,000 $2/flight 150,000
The head of Baggage Management suggests that an allocation on the basis of baggage
traffic, not flights, will be better at representing the distribution of lost bag costs. Total
number of bags handled during the year are: 2,490,000 at DFW; 1,582,400 at YYZ, and
763,500 at MEX.
What is the activity and the cost driver for the baggage traffic basis?
Problem 11.42
Blue Sky Airways traditionally distributes the indirect cost of lost baggage to its three
major hubs using a basis of annual number of flights in and out of each airport. Last year
$667,500 was distributed as follows:
Department
Basis
Rate
Expected usage
M
Direct labor in $
$2.40 per $
$450,000
P
Materials in $
$0.50 per $
$850,000
Q
Number of
inspections
$25 per
inspection
4,800
Hub Airport Flights Rate Allocation
DFW 110,000 $3/flight $330,000
YYZ 62,500 $3/flight 187,500
MEX 75,000 $2/flight 150,000
The head of Baggage Management suggests that an allocation on the basis of baggage
traffic, not flights, will be better at representing the distribution of lost bag costs. Total
number of bags handled during the year are: 2,490,000 at DFW; 1,582,400 at YYZ, and
763,500 at MEX.
Using the baggage traffic basis, determine the allocation rate using last year’s allocation
of $667,500 and distribute this amount to the hubs.
Problem 11.43
Blue Sky Airways traditionally distributes the indirect cost of lost baggage to its three
major hubs using a basis of annual number of flights in and out of each airport. Last year
$667,500 was distributed as follows:
Hub Airport Flights Rate Allocation
DFW 110,000 $3/flight $330,000
YYZ 62,500 $3/flight 187,500
MEX 75,000 $2/flight 150,000
The head of Baggage Management suggests that an allocation on the basis of baggage
traffic, not flights, will be better at representing the distribution of lost bag costs. Total
number of bags handled during the year are: 2,490,000 at DFW; 1,582,400 at YYZ, and
763,500 at MEX.
What are the percentage changes in allocation at each hub using the two different bases?
Problem 11.44
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%
Problem 11.45
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%
Problem 11.46
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) and (b) are correct.
Problem 11.47
The cost of constructing an 8000 ft2 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
Problem 11.48
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
Problem 11.49
The cost for a 200-horsepower (hp) pump, 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
Problem 11.50
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
Problem 11.51
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
Problem 11.52
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
Problem 11.53
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
Problem 11.54
The total plant cost for manufacturing CO2 warning 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
Problem 11.55
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
Problem 11.56
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
Problem 11.57
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.
Problem 11.58
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
Problem 11.59
If engineering change order is the activity for an application of the ABC method of
overhead allocation, the most reasonable cost driver(s) may 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
Solution 11.1
Elements of first cost include equipment cost, delivery charges, installation cost,
Solution 11.2
Solution 11.3
(a) direct materials-AOC;
Solution 11.4
Solution 11.5
Solution 11.6
Property cost: (100 ×150)(2.50) = $37,500
Solution 11.7
Solution 11.8
Solution 11.9
Solution 11.10
Solution 11.11
Time between 1999 and 2012 is 13 years
Solution 11.12
Solution 11.13
From Table, index value in 2003 = 6695; index value in 2012 = 9290
Solution 11.14
To have index value of 100 in year 2003, must divide by 66.95.
Solution 11.15
Solution 11.16
Cost2011 = Cost2002(1490.2/1104.2)
Solution 11.17
Solution 11.18
Solution 11.19
Solution 11.20
Solution 11.21
Solution 11.22
Solution 11.23
20,000 = C1(200/100)0.61 = 1.526C1
Solution 11.24
Solution 11.25
If C2 = 1.04 C1 and Q2/Q1 = 0.50, the cost-capacity relation is
Solution 11.26
12 inches = 1 foot; area of circle = (1/4) π × diameter2
Solution 11.27
Solution 11.28
Solution 11.29
(a) Let C1 = cost in 2004; M & S index values are 1178.5 in 2004 and 1490.2 in
(b) n = 7 years from 2004 to 2011
Solution 11.30
Solution 11.31
Solution 11.32
Solution 11.33
Use a 0.9 learning rate for each doubled production. (Times are rounded.)
Solution 11.34
Solution 11.35
s = log 0.90/log 2 = -0.152. Use Equation [11.8) for TN.
Spreadsheet graphs using arithmetic and log-log scales follow.
Solution 11.36
Same logic as in the previous problem, except s = log 0.95/log 2 = -0.074. If CN is the
cost for unit N,
Spreadsheet graphs using arithmetic and log-log scales follow.
Solution 11.37
Solution 11.38
Station ID Service trips/year Allocation, $__
Stanton 190 190(49.10) = 9329
Solution 11.39
(a) North: miles basis; rate = 300,000/350,000 = $0.857 per mile
Spreadsheet: Total distributed is larger due to spreadsheet’s significant digits.
Solution 11.40
(a) Hand solution: Make alternative indirect cost computation
Dept
Rate
(1)
Usage
(2)
Annual cost
(3) = (1)(2)
M
$2.40
450,000
$1.08 million
Determine AW for make and buy alternatives.
(b) Spreadsheet solution: Select to make inhouse.
Solution 11.41
Solution 11.42
Bags handled
Rate
Allocation
DFW
2,490,000
0.138
$343,620
187,500
218,371
+16.5
Solution 11.43
Last year;
flight basis
This year;
baggage basis
Percent
change
DFW
$330,000
$343,620
+ 4.1%
Solution 11.44
Solution 11.45
Solution 11.46
Solution 11.47
Solution 11.48
Solution 11.49
Solution 11.50
120,000 = 80,000(2)x
Solution 11.51
CT = (1 + 1.36 + 0.31)(650,000) = $1,735,500
Solution 11.52
Solution 11.53
Solution 11.54
Solution 11.55
3,000,000 = 550,000(100,000/6000)x
Solution 11.56
s = log 0.95/log 2 = -0.0222/0.30103 = -0.074
Solution 11.57
Solution 11.58
Allocation = (900 + 1300)(2000) = $4.4 million
Solution 11.59