What are Product Cost Models?
To start off, let’s define the scope of what costs we are modeling. There are cost models for lots of things: from your next trip to Europe to estimating the cost of a new addition to your house. In our discussions, we are talking about Cost Models for Discrete Products, i.e. products made up of individual parts, assemblies, etc. — what are traditionally referred to as “discrete manufacturing” products. (This is opposed to “process manufacturing,” i.e. the making of detergent, food, chemicals, gasoline, et. al., products that are typically made via a continuous flow or homogenous batch manufacturing method.) Cost Modeling is the discipline of predictively calculating what a product costs (read: time and money) to manufacture and deliver to the customer. Cost Models are the actual mathematical and logical methodologies that are created for this purpose. Tomorrow, we will talk about what Cost Models are not and play Mythbusters for three common misconceptions about Cost Models. (Don’t w
