chapter  11
8 Pages

. Using Work Measurement in Cost Estimation

Product pricing is heftily market dependent and is largely a function of supply and demand (e .g ., the fluctuations in the current global price of oil) . In a competitive market, company management may manipulate a product’s price downwards in one of the two ways: (1) reduce the profit margin or (2) reduce its production cost . (A combination may be used, although it is expected that all efforts to minimize costs at the design stages have already been attempted . For instance, when due consideration has already been given to alternative materials, processes, quality requirements, and whatnot, at the design stages and have been thoroughly investigated .) Reducing the profit margin is not always a palatable option, unless the intent is to secure a greater market share or create a temporary increase in the market demand (assuming that the demand for the product is elastic), and is generally a short-term option . In the long term, a company must minimize its production costs without compromising on consumers’ expectations . This means that the design of the product must be complete in terms of its ability to deliver the expected function without compromising its usability, quality, etc . Once the design of the product is complete in terms of its attributes, the manufacturer must forecast production quantity and determine the cost of manufacturing it accurately .