Designing and Cost Analysis

When designing furniture, costs must be taken into account and they should not surprise at the end of designing or during the validation of the model. The designer and constructor should be informed on a regular basis about the current costs of the designed product, so that they can, at appropriate times, make decisions about changing the design and/or technological concept.

In the course of designing, the constructor can be informed of the costs on the basis of:

• historical calculations of similar and already manufactured products;

• a simplified calculation based mainly on the current costs of materials and

indicatory costs of labour, machinery and general costs; and

• information constituting a component of the knowledge base in the integrated IT

management system.

Basing on historical calculations makes sense only if it concerns a product that is very similar to the currently designed product in terms of construction and tech­nology. Using coefficients of dimension proportions enables to estimate the cost of a new product. However, it should be remembered that it is a calculation that is very approximate and sales price lists should not be drawn up on this basis.

A simplified calculation serves as an approximate estimation of the product’s costs. Although it is inaccurate, it is usually enough for small – and medium-sized manufacturers to prepare a sales offer. The reference basis for this calculation is the cost of the material contained in the designed furniture. On the basis of an overall volume, area, length, weight and quantity of components used in the model of furniture, material costs are quite clearly specified. Labour costs, the cost of machinery, as well as departmental and overhead costs are specified by coefficients with respect to material costs. However, this element of the calculation is extremely unreliable, as material costs are not always repeatedly correlated with other costs. Usually such a cost estimation, fanned by the desire to maximise own profit and the uncertainty of the quality of calculations, leads to inflating the postulated cost of manufacturing a new product. In the case of rivalry of manufacturers in tender proceedings, the bidder is not certain as to the real level of profitability and balances on high-risk threshold of the venture.

The calculation of postulated costs, based on the product’s bill of materials (BOM), is the closest to the real costs. Such a structure can be obtained automat­ically by designing a product in any CAD system for block modelling. Using the materials register of the integrated IT management system (ERP), for building indexes of a product’s design construction in CAD environment, then the techno­logical processes in ERP, one can obtain a reliable calculation of the designed product. Information about the prices of materials is included in the purchase price lists of raw materials, and the prices of semi-finished products are usually stored in Technical production cost (TPC) price lists. The cost of operation and costs of machinery are located in the technological processes, which constitute a component of the knowledge database in the manufacturing module of the integrated IT management system. The accuracy of calculating postulated costs depends, of course, on the phase of the development of the project (Fig. 4.8).

In initial projects, when the precise structure and technology of manufacturing the product is not known, the accuracy of the cost estimation does not exceed 55 % of the real costs. For modelling projects, in principle, one can precisely specify the material costs and estimates of remaining costs, which is why matching real costs reaches the level of 75 %. Only after manufacturing the product in production

Level of project development

Project to prototyping

Project to modeling

Preliminary draft

50% 5І% 66% 76% 75%

Accuracy of cost calculation

Fig. 4.8 The accuracy of calculations depending on the degree of development of the project

version and checking the technological features in industrial conditions brings accuracy of estimation closer to the level of 85 %, and even 88 % of real costs.

One of the strengths of concurrent designing is the strong focus on costs. The linking of designers, engineers with one integrated CIM system provides concur­rency of actions, the consistency of choices (in terms of both technology and costs), minimising the amount of fixes and a reduction of real costs.

Keeping a full calculation of costs while designing or manufacturing aims to create a database of information necessary for:

• determining the price of the final product and the prices of semi-finished products,

• developing the company’s pricing policy,

• quoting products configured at the request of the customer,

• determining and controlling the costs of manufactured products and

• performing a comprehensive analysis of financial results.

Based on data from the production module ERP, and stored in material specifica­tions, technological processes and production sites, both planned costs and real costs of realising production orders should be determined. As a result of breaking up all of the levels of the BOM structure, material components necessary for production are calculated, as well as the waste resulting from this production. If all the levels of the technological processes for each operation are developed, the following costs are calculated: production site, actual units of the product made, including use and non-use deficiencies, as well as actually realised times. Finally, for the production sites, based on user-defined formulas, the costs of their use are calculated.

In the furniture designing and manufacturing process, the following are most commonly calculated:

• The initial cost, carried out at any stage of the product’s development, in order to determine the initial, estimated assessment of costs of the final product and/or semi-finished products, even before the product is approved by the customer and sent to production. The manufacturing cost saved as a result of this calculation should be compared with other such calculations in order to find the most beneficial solution of the design and method of manufacturing.

• The basic (standard) cost realised and recorded as valid at the stage of manu­facturing any product. The basic cost established as a result of this calculation will provide the basis for comparisons with real costs.

• The real cost is performed on the basis of the data recorded in completed pro­duction orders. The recorded real cost of the order compared to the basic cost enables to determine the difference of costs, and in the future modifications of the material specification, the technological processes or costs of production sites.

In the system of cost record, the following basic classification sections are taken into account (Gabrusewicz et al. 2002):

• type-based system, which includes the costs of material consumption, remu­neration, machinery depreciation, etc.—enables the evaluation of the internal structure of costs;

• function-based system, according to place of origin, including the costs of basic activity, departmental costs, sales costs, etc.—enables to control the develop­ment of costs at the place of their origin; and

• calculation-based system, which includes direct and indirect costs, according to cost carriers, which leads to the arithmetic determination of the own unit cost of objects or provided services.

Type-based system reflects costs concerning only basic operational activity. Basically, these are all costs incurred during a given period, regardless of whether they relate to periods prior to the reporting period, reporting periods or future periods.

Function – and calculation-based systems reflect complex costs, i. e. consisting of certain positions of simple costs per carrier and centre of liability and concerns basically just a given reporting period.

Calculation-based system of costs contains extended information about costs, and it indicates the relationship of costs incurred with the objective (product, ser­vice). Here, we distinguish (Table 4.1):

• direct costs—referred directly to a given product. These are as follows:

– costs of direct materials,

– costs of fuels and energy,

– costs of direct remunerations together with surcharges and

– other costs connected with preparing the necessary tools, the necessity of outsourcing, etc.,

Table 4.1 Structure of own costs

Own cost of the manufacturer

Production cost



Direct cost

Indirect cost

Cost of direct materials, direct labour cost and other direct costs



Departmental cost

Cost of operating machines and equipment

General cost of department

• indirect costs—settled in a contractual manner. These include:

– departmental costs—costs of the organisation and production support in particular departments,

– overhead costs—costs of the general organisation and support of the com­pany and maintaining its board and

– sales costs—costs of packaging.

Calculation-based system of costs also lists losses in deficiencies, warranty costs, financial operations, etc. The cost analysis in calculation-based system of costs means determining the dynamics of specific positions on a bill and evaluating the structure of the system and its changes over time. The primary task of the calculation-based system of costs is to determine the amount and unit structure of own costs (Gabrusewicz et al. 2002; Karpinski 2004; Nowak et al. 2005).

Own cost constitutes the sum of production costs and non-production costs:

K0 = Kwy + Knp (4.1)


Ko own cost of the manufacturer,

Kwy production cost and Knp non-production cost.

The cost of production consists of direct costs and indirect costs:

KWy = Kb + Kp, (4.2)


Kb direct cost and Kp indirect cost.

Direct cost consists of sums of the costs of direct materials, direct labour and other direct costs:

Kb Kmb ^ Krb^Kib;


Kmb cost of direct materials, Krb direct labour cost and Kib other direct costs.

Direct materials are materials collected from the warehouse or purchased in order to process and/or directly integrate with the element of furniture and/or fur­niture, e. g. wood, leather, fabric, chipboards, glue and lacquer. Direct labour is the documented work of workers directly involved in the production of a given product, e. g. cutting, drilling, lacquering, sanding and assembling, along with taking into account the insurance of employees. Other direct costs are those which consist of remunerations and materials directly related to the manufacture of the product, but that are not part of it, e. g. cleaning the job post, maintenance of runners, sandpaper, polishing paste and cleaning agents.

The costs of direct materials are calculated:


Kmb = ^2(mc + cz)j, (4.4)



m quantity of raw material necessary to construct one item of the product, c price of material according to units of use, cz cost of purchasing material and p number of types of materials.

Costs of direct labour are calculated:


Krb ‘У ) (tj^g ^ tpzso^) flsoc; (4:5)



tj unit time of performing operation [h],

tpz preparation, completion time [h],

sg price rate for the operation at a given work position [$/h],

so price rate for preparation, completion operations [$/h],

qsoc coefficient of social costs and

n number of operations included in the technological processes.

Other direct costs are calculated:

n p

Kib = 53 itiSgqsoc)i + 53 (mibc + cz)j, (4-6)

i=1 j=1


mib quantity of raw material not being part of the product unit.

Indirect costs are created by costs not related directly with the manufactured product, but with the sole fact of its production. These costs include departmental costs and overhead costs:


Kw departmental cost and Koz overhead cost.

Departmental costs are generated by the department or division in relation to the realised production, and mainly result from the operational costs of machines and devices, as well as general costs of the division:

Kw = Krm + Kow; (4.8)


Krm cost of operating machines and equipment and Kow general cost of department.

The operating costs of machines and equipment consist of the costs of fuel and technological fluids, electricity used for production and lighting, heating, mainte­nance and repair of machines and equipment, sharpening and repair of tools, operation of machines and equipment, as well as their depreciation. The overhead costs of the department include remunerations and insurance of the administration staff of a given department, the maintenance and repairs of buildings, cleaning supplies, departmental transport, cost of downtime, maintenance of laboratories and workshops and cost of using perishable items.

The cost of operation of the machines and equipment are calculated:

Kpm + Kpn + Kpst + Krem + Kt


Kpm cost of operation of the machine,

Kpn cost of operation of the tool,

Kpst cost of operation of the technological means,

Krem cost of the machine’s renovation and Kam cost of depreciation,


Pqp і і

Kpm “ ypmsSs P yr tpms) sj) tm;



P total nominal power of engines in the machine [kW],

qp coefficient of using nominal power of engines,

tr annual fund of machine’s operation time [h],

tpms annual operation time of machine in peak hours [h],

tm unit time for machine performing operation [h],

ss price rate for 1 kWh of energy used in peak hours [$/h] and

Sj price rate for 1 kWh of energy used outside peak hours [$/h].

Kpn P noKo ttr C1 + no)


Kpn initial book value of tool [$],

Ko cost of one sharpening of tool [$],

ttr initial duration of work of tool [h] and

no number of tool sharpenings.


KSt initial book value of technological means [$] and tst expected duration of work of technological means [h].

Krem Krpl P Knb P Kko;


Krpl cost of planned renovations [$],

Knb cost of current repairs and inspections [$] and Kko conservation cost [$].

У Kna

Kam — ;



Kna cost of purchasing fixed asset, machine [$] and aam number of years.

Overhead costs are all costs related to the functioning of the factory as a whole. This includes costs of the management board, costs of overhead transport and the maintenance costs of sites occupied by the factory. Usually, they are calculated as follows:


Koz qoz E (Krb + Kwy ) i;



qoz coefficient of surcharge of overhead costs, n number of divisions,

Krb direct labour cost and Kwy production cost.

In industrial practice, the responsibility of constructors and/or technologists is keeping and recording calculations of the technical production cost (TPC) for products both during the process of creating and modifying the material specifi­cations (BOMs). Based on the postulated values of TPC, recorded for specific products and semi-finished products, planners of production should make com­parisons with real technical costs of production calculated by them.

Updated: September 28, 2015 — 5:07 am