Comparison of Indirect Cost Multipliers for Vehicle Manufacturing

Topics: Electric vehicle, Plug-in hybrid, Cost Pages: 10 (2942 words) Published: August 23, 2013

Technical Memorandum in support of Electric and Hybrid Electric Vehicle Cost Estimation Studies

by Anant Vyas, Dan Santini, and Roy Cuenca Center for Transportation Research Energy Systems Division Argonne National Laboratory 9700 South Cass Avenue Argonne, Illinois 60439

April 2000

Work Sponsored by United States Department of Energy Assistant Secretary for Energy Efficiency and Renewable Energy Office of Transportation Technologies

This report was prepared as an account of work sponsored by an agency of the United States Government. Neither the United States Government nor any agency thereof, nor The University of Chicago, nor any of their employees or officers, makes any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of any information, apparatus, product, or process disclosed, or represents that its use would not infringe privately owned rights. Reference herein to any specific commercial product, process, or service by trade name, trademark, manufacturer, or otherwise does not necessarily constitute or imply its endorsement, recommendation, or favoring by the United States Government or any agency thereof. The views and opinions of document authors expressed herein do not necessarily state or reflect those of the United States Government or any agency thereof, Argonne National Laboratory, or The University of Chicago.

COMPARISON OF INDIRECT COST MULTIPLIERS FOR VEHICLE MANUFACTURING INTRODUCTION In the process of manufacturing and selling vehicles, a manufacturer incurs certain costs. Among these costs are those incurred directly as a part of manufacturing operations and those incurred indirectly in the processes of manufacturing and selling. The indirect costs may be productionrelated, such as R&D and engineering; business-related, such as corporate staff salaries and pensions; or retail-sales-related, such as dealer support and marketing. These indirect costs are recovered by allocating them to each vehicle. Under a stable, high-volume production process, the allocation of these indirect costs can be approximated as multipliers (or factors) applied to the direct cost of manufacturing. A manufacturer usually allocates indirect costs to finished vehicles according to a corporation-specific pricing strategy. Because the volumes of sales and production vary widely by model within a corporation, the internal corporate percent allocation of various accounting categories (such as profit or corporate overhead) can vary widely among individual models. Approaches also vary across corporations. For our purposes, an average value is constructed, by means of a generic representative method, for vehicle models produced at high volume. To accomplish this, staff at Argonne National Laboratory’s (ANL’s) Center for Transportation Research analyzed the conventional vehicle cost structure and developed indirect cost multipliers for passenger vehicles. This memorandum summarizes the results of an effort to compare and put on a common basis the cost multipliers used in ANL’s electric and hybrid electric vehicle cost estimation procedures with those resulting from two other methodologies. One of the two compared methodologies is derived from a 1996 presentation by Dr. Chris Borroni-Bird of Chrysler Corporation, the other is by Energy and Environmental Analysis, Inc. (EEA), as described in a 1995 report by the Office of Technology Assessment (OTA), Congress of the United States. The cost multipliers are used for scaling the component costs to retail prices. ANL METHODOLOGY The ANL methodology described here is based on an analysis concerned with electric vehicle production and operating costs (Cuenca et al. 2000; Vyas et al. 1998). The analysis evaluated the cost structure for conventional vehicle manufacturing and retailing and assigned shares of the manufacturer’s...

References: American Automobile Manufacturers Association, 1998, Economic Indicators: The Motor Vehicle’s Role in the U.S. Economy, Detroit, Mich. Borroni-Bird, C., 1996, “Automotive Fuel Cell Requirements,” Proceedings of the 1996 Automotive Technology Development Customers’ Coordination Meeting, U.S. Department of Energy, Office of Transportation Technologies, Washington, D.C. ANL 2.00 1.50 Borroni-Bird 2.05 1.56 EEA 2.14 1.56 EEA Methodology Share of Cost Contributor or Category MSRP (%) 50.0 Vehicle Manufacturing 17.0 Overhead 7.0 23.5 Selling 97.5 Sum of Costs 2.5 Profit 100.0 RPE
Share of RPE (%) 46.9 22.1 22.9 91.9 8.1 100.0
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Cuenca, R.M., L. L. Gaines, and A. D. Vyas, 2000, Evaluation of Electric Vehicle Production and Operating Costs, Argonne National Laboratory Report ANL/ESD-41, Argonne, Ill. (to be published). Vyas, A., R. Cuenca, and L. Gaines, 1998, “An Assessment of Electric Vehicle Life Cycle Costs to Consumers,” Proceedings of the 1998 Total Life Cycle Conference, SAE International Report P339, Warrendale, Penn., pp. 161-172.
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