‫بسم هللا الرحمن الرحيم‬

1 Prof. Dr. M. Mansour Wednesday, April 17, 2024

 Introduction
Definitions
• Sp = Sales price per unit.
• Q = Number (quantity) of units to be manufactured and
sold during the period.
• Ve = Variable expenses to manufacture and sell a single
unit of product.
• Fe = Total fixed expenses for the period.
• Ct = Total Cost = Fe + Ve
• BEP : The point at which total of fixed and variable costs
of a business becomes equal to its total revenue is
known as break-even point where:
Sp × Q = Ve × Q + Fe
 Break Even Point (BEP)

• Example :
• If the annual fixed expenses to run the
business are $15,000 and variable expenses
are $7.50 per unit. The sale price of your
product is $15 per unit. Determine the
number of units to be sold to break even .
• BEP can be easily calculated using
 BEP Calculations

Solution :
• Sp × Q = Ve × Q + Fe
• 15 × Q = 7.5 × Q + 15,000
• 15 Q = 7.5 Q + 15,000
• 15Q – 7.5Q = 15,000
• 7.5Q = 15,000
• Q = 15,000 / 7.5
• Q = 2,000 units
• The break-even point in units is 2,000 units and the break-even point in
dollars can be computed as follows:
• = (2,000 units) × ($15)
• = $30,000
Break Even Point Graphically (BEP)
Costing
 ?What are operating costs and how to calculate them

•
• Labor costs, such as payroll
• Employee health insurance, pensions, and
other benefits
• Sales commissions
• Asset depreciation
• Amortization
• Maintenance costs
 Tips for cost reduction
• Automate time-consuming tasks
• Outsource for extra efficiency
• Find a freelancer
• Integrate an internship
• Entertain different vendor bids
• Ditch your office building
• Pay your bills in advance
• Put wasteful habits to rest
• Pull the plug on unused services
• Use free apps whenever possible
• Go paperless
• Think eco-friendly and save
• Use bartering instead of cash
• Slash your travel budget
Product Cost Analysis
Fixed Cost Calculations
 Fixed Costs
Variable Factory Overhead Examples Fixed Factory Overhead Examples
•Electricity •Depreciation
•Heating •Property taxes
•Water •Property insurance
•Indirect Materials •Salaries for non-production employees
•Indirect Labor
Cost Diagram
Variable Costs
Standard Cost Example
Manufacturing System and
Product Cost Analysis
 Manufacturing System

17 Prof. Dr. M. Mansour Wednesday, April 17, 2024

 Product Life Cycle

18 Prof. Dr. M. Mansour Wednesday, April 17, 2024

 Integrating Design for
Developing a Product

19 Prof. Dr. M. Mansour Wednesday, April 17, 2024

 Technology Developing Curve
S-Curve

20 Prof. Dr. M. Mansour Wednesday, April 17, 2024

 Forecasting

21 Prof. Dr. M. Mansour Wednesday, April 17, 2024

 ? How to reduce cost
• Optimum Design
• Material Selection
• Labors Training
• Scrap and Waste Control
• Avoiding Waste Time
• ……
• Others
 The 10 Most Effective Methods to Reduce Manufacturing Costs

• Costs associated with Product Design

• Implement Lean Manufacturing/Production Principles
• Reduce overhead manufacturing costs with build-to-order and
mass-customized inventory
• Standardize parts to reduce manufacturing costs
• Rationalize the product line to focus on the most profitable
products
• Simplify supply chain management
• Evaluate the cost/benefit of quality
• Total cost measurement
• Use the RIGHT Manufacturing System
• Cost Management During Product Development
 Costs associated with Product Design

• Cost Management During Product

Development
Implement Lean Manufacturing/Production Principles
 Reduce overhead manufacturing costs with
build-to-order and mass-customized inventory
Standardize parts to reduce manufacturing costs
Rationalize the product line to focus on the
most profitable products
Simplify supply chain management
Evaluate the cost/benefit of quality
Total cost measurement
Use the RIGHT Manufacturing System
Cost Management During Product Development
Productivity Input Data
Symbol Definitions
Q Product Quantity

P Product unit price

H No.of hrs / unit

X1 Average labor cost / hour / unit

X2 Material cost / unit

X3 Direct production super

X4 Main tenancy cost / unit

X5 Energy & utility / unit

X6 Quality control cost / unit

X7 Royalty payment / unit

X8 Royalty payment / unit

X9 Payrolls

X10 Losses and other cost

 Productivity Model

• Pt = O /I

• See Exel sheet

END