The costs considered in the Costing Engine are divided into the following sections:
Direct compensated costs
o Direct labour costs; the cost of all wages and benefits of the direct labour employees and temporary workers who work directly on the products.
o Other direct compensated costs; the costs of the supporting departments: production engineering, test engineering, quality control and purchasing, directly allocatable to production*).
*) For many EMS providers, it is not desirable to absorb the entire costs of the aforementioned production supporting departments in the overhead costs. This benefits the more complex jobs but is detrimental to the easier jobs. QuoteArchitect enables a percentage of the annual available hours per department to be defined as direct hours, to allow the correct costs to be allocated to a production job. Typical examples are the cost of purchasing for a complex prototype with many BOM items, or test engineering for a particular job. The departmental costs not directly allocated to production are allocated to overheads as “indirect compensated costs”.
o Genuine overhead.
Included under genuine overhead are all standard overhead costs:
- overall company expenses (commercial, general and administrative)
- manufacturing overhead (facility costs, energy, maintenance, etc.)
o Indirect compensated costs are the costs of the supporting departments: production engineering, test engineering, quality control and purchasing, not directly allocatable to production.
o Production overhead is the sum of the costs of unused production capacity**)
**) For many production machines or lines (in QA known as “operations”), the occupancy rate is initially or permanently lower (or even low). However, inclusion of all costs of the operation in the few products to be processed is unrealistic. For every operation, the QA rules engine calculates the costs per hour, based on the standard production hours per annum and multiplies these by the estimated real production hours for the year, to arrive at the amount for direct costs. The difference between the total annual costs and the direct costs is the “production overhead”.
The user can decide to how much detail the costs will be defined. For the calculations, QA accepts, for instance, a lump sum for genuine overhead, but a detailed cost specification is also possible. The production overhead figure is automatically derived from the virtual factory operation definitions.
Also, certain costs can be omitted from the model. For instance (some of) the company management costs can be absorbed in the commercial mark-up when calculating the sales prices. The virtual factory model is flexible in order to accommodate any thinkable scenario.