Rough-Cut Cost Estimation in a Capacitated Environment

This article presents a deterministic model for rough-cut cost estimation in a capacitated madeto-order environment. We assume that a firm can execute each job either at its own shop or by outsourcing it. The model calculates the unit cost of each product while taking into account the shop floor rough-cut capacity planning, and by determining what to produce in the firm’s shop and what to outsource. In order to reduce run times, a greedy heuristic algorithm was developed. Comparison of the proposed model with a model that takes into account precedence between operations and with a traditional costing approach was conducted. The article gives insight on the affect of shop workload, machine loading, and outsourcing decisions on the product unit cost estimation.