Cost Estimation in a Capacitated Environment

Nowadays, in the global competitive market, companies’ prosperity is strongly dependent on their ability to accurately estimate product costs. This is especially true for firms operating in a make-toorder environment. For such firms, a small error in a price quote, resulting from erroneous product cost estimation, may make the difference between being awarded and losing a contract. During the last decade, the relative weight of direct labor costs in manufacturing has dramatically diminished, while the relative weight of indirect costs has increased (Gunasekaran, Marri & Yusuf, 1999). Therefore, allocating indirect costs to products, without taking into account shop floor capacity, may lead to erroneous estimations. Despite this, most existing cost estimation models assume unlimited shop floor capacity. There are many such models in the literature. These models use information about the products, the materials and the production processes. Common approaches are: aBStraCt