Production Planning, Estimation and Costing
What the exam tests
Routing and scheduling, simple cost build-ups, break-even analysis, and estimation of machining cost and selling price.
Core rules
- Planning sequence: forecasting → process planning or routing → loading → scheduling → dispatching → follow-up. Routing fixes the order of operations; scheduling fixes when they happen.
- Gantt charts compare progress with plan; CPM uses a deterministic network and identifies the critical path; PERT uses three time estimates for uncertain activities.
- Cost build-up: prime cost = direct material + direct labour + direct expenses; factory cost adds factory overhead; total cost adds administrative and selling overhead; profit is added to reach the selling price.
- Overhead is recovered as a rate per labour hour or per machine hour, computed on productive time only.
- Break-even quantity = fixed cost ÷ (selling price − variable cost per unit).
- Depreciation: straight line = (cost − salvage) ÷ life; reducing balance = a fixed percentage of book value each year.
- Estimated machining time uses L/(f × N) plus allowances for setting, idle time and tool change, and scrap allowance.
Worked example
A turned pin uses 0.35 kg of bar at ₹80/kg, so material is ₹28. Labour is 6 min at ₹120/h = ₹12; machine hour rate ₹150/h for 6 min = ₹15; overhead at 20 % of labour = ₹2.40. Cost ≈ ₹57.40, and with 10 % profit on cost the price ≈ ₹63.14. If the paper says profit on selling price, the answer differs - read that phrase first.
Traps
- Adding profit on the selling price when it is stated on cost.
- Computing a machine-hour rate on total attended hours instead of productive hours.
- Confusing routing (what order) with scheduling (when).