Concurrent Engineering 

The planning of direct labor cost for an item may be a cost estimate or may be obtained from direct labor standards. If direct labor standard times are used, the standard direct labor cost is calculated from the labor standard and the average hourly rate paid for the operation.

The standard direct material cost is calculated from the standard usage and standard raw material unit price. The planning of direct materials usage is fundamentally similar to that for direct labor.

In the concurrent engineering's cost estimating system, the bill of material enables every usage of each item to be found. Therefore, the standard direct labor cost can be accumulated for a part and accumulated into the direct item cost of every assembly in which the item is used. This process applies to the entire product definition database. It starts at the raw material level, through operations, to the component level and working upward one level at a time, to the finished product level. The standard item cost so developed now contains both direct labor and material cost elements.

The planning of overhead expenses involves:

1. Establishing departmental expenses

2. Allocating departmental expenses among productive departments as overhead expenses

3. Charging overhead expenses directly to products Individual product cost in traditional cost estimating systems does not capture the true cost of manufacturing. Manufactured products that do not actually utilize some of the incurred overhead expenses are absorbing the costs and those products that are produced with overhead expenses are not absorbing the true costs of their manufacture. Therefore, profit margins of different products are distorted.

When allocation of overhead costs is planned in the concurrent engineering's cost estimating system, each cost should be consid­ered individually and allocated by the best available method. There is no need, as there is in the traditional cost estimating system, to limit either the number of costs to be allocated or the number of different factors on which allocation is based. The amount of calculation performed when more detailed allocation of overhead costs is attempted is insignificant.

For a manufacturer performing under concurrent engineering, it appears that various work cells to be defined in which complete products or major components are produced. The key is to find a methodology for charging overhead expenses directly to prod­ucts or product families as they are being produced. The following considerations may apply when organizing overhead allocation:

1. 1. Using route sheets, assign a group of operations to each individual work cell that determines the sequence of oper­ation. Overhead costs are then charged directly to the work cell that in the traditional cost estimating system had been allocated from an overhead poll based on direct labor.

2. Assign each individual work cell an allocation method that provides the basis on which its overhead expenses will be allocated.

Conclusion

Addressing all product aspects including cost during the design stage is a new approach to engineering design that has been call concurrent engineering. Hence, production cost targets are known before the design details are developed.

Traditional cost estimating system may be used in concurrent engineering. But estimated product cost may give answers about total product profitability. This problem can be resolved under the proposed methodology and when it is implemented it help cost management system to compare profit margins of different product lines with related resources actually used.

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