Senior Design I 

EE 4103

Electrical Engineering Senior Design I

COST ANALYSIS

The Senior Design involves developing a product.  As part of the simulation, the different companies (teams) will market and sell the design.  This is in a competitive environment.  

Customers will purchase units during a Sales Fair.  Make your best commercial presentation with props, displays, and any other items that will sell your product.  Remember everything must be in good taste that is acceptable to your mother.  

In the real world, and your presentation, product performance can often be overcome with excellent product promotion.  That is why product image, advertising, and packaging are so important.  

The fair will be after the Christmas party on the last Friday of the semester.  Start time is 1:00 PM.

Selling units is one thing.  Making a positive cash flow is another.  Therefore, use the following criteria for developing a costing structure.  

After the first 500 units are sold, some costs may be reduced because of economies of scale, purchasing negotiation position, and learning curve.  Keep the unit costs for the first 500.  It is the incremental over 500 that reduces costs.

1.  Bill of materials
Prepare at least  two complete Bill Of Materials for all the components of the product.
Bill of Material Basic is for the components necessary to meet the specifications.
Bill of Material Custom is for the complete system as marketed.
Bill of Material Other is for any additional models you may have developed.

All the following discussion applies to every bill of material.

2.  Parts
Use unit prices (quantity = 1) prices from Digi-key for each component.
For foreign items not purchased from Digi-key, use actual cost plus a 10% penalty.
After 500 units, costs may be reduced by 50%.
Calculate a total parts cost.

3.  Purchasing Overhead
Add a factor of 75% to the costs for purchasing overhead.

4.  Printed Circuit Board
This price is used since your actual setup may be exorbitant for your single prototype unit.
If a printed circuit board is used, assume a cost of $5.00.
After 500 units, costs may be reduced by 50%.

5.  Assembly 
Set-up cost is $5.00 per unit.
Resistor and capacitor mounting, no charge.
Other component mounting, $0.50 per component.
Soldering, $0.02 per point.
After 500 units, costs may be reduced by 50%.

6.  Manufacturing Cost Total
Total the cost of parts, purchasing overhead, pcb, and assembly.

7.  Manufacturing Overhead
Add a factor of 50% of the manufacturing total cost to cover overhead.

8.  Engineering Development
Engineering development is $10,000 for the first 500 units.
Add a cost of $20.00 per unit for less than 500.
After 500 units, costs may be reduced to $2.00 per unit as an engineering override.

9.  Production Cost
Total the manufacturing cost, manufacturing overhead and engineering cost for a production cost.

10.  Administrative and General Overhead
Add 15% of the production cost to pay for the front office.

11.  Base Cost
Total production cost and general overhead for a unit base cost.

12.  Pre Sale Report
Prepare a detailed breakout of the computation of Base Cost prior to the Sales Fair.
Submit this report prior to the start of the Fair.
An example is available.

13.  Profit
Compute profit for each sales order.
Profit is (Selling Price - Base Cost) * Units Sold
Total the profit from each sale to obtain a gross profit.

14.  Sales Report
Prepare a combined sales report.
Each order is documented with Units Sold, Selling Price, Base Cost, and Profit.
Total the orders with Total Units Sold, Average Selling Price, Total Sales Dollars, and Total Profit.

It is strongly recommended that you prepare an Excel spreadsheet for the report, prior to the fair.
Submit this report at the conclusion of the Sales Fair.
An example is available.

15.  Comment
The projected total sales among all teams is expected to be in the range of $500,000 to $750,000.
This will depend highly on your ability to promote.

It will be a fun, exciting, and stimulating session.

 Back-Home