Annual Direct Overhead

Annual direct overhead is the sum of costs in five categories:

Direct Overhead Cost = Annual Depreciation +
Annual Maintenance +
Energy to Run Machine +
Annual Supplies + Imputed Interest

The categories are discussed in the following sections:

• Annual Depreciation

• Annual Maintenance

• Energy to Run Machine

• Energy to Run Machine

• Imputed Interest

By default, facilities cost is not included in direct overhead cost, but Digital Factory Administrators can override the default and specify that such costs are to be counted as part of direct overhead by setting the Digital Factory variable Add Facility Cost to Direct Overhead to true.

Annual Depreciation

Annual depreciation depends on the cost to buy the machine, the cost to install the machine, and salvage value. aPriori uses linear depreciation, and starting point Digital Factories typically assume no salvage value. For most machines, aPriori depreciates the machine over 15 years.

Machine costs are obtained from a number of sources, usually the machine manufacturer or a reseller. In some cases aPriori estimates the cost of the machine by considering the cost of similar machines.

The following formulas show how depreciation is calculated:

Annual Depreciation = (Total Cost of Machine - Salvage Value) / Machine Life

• Total Cost of Machine = Machine Price + Installation Cost
  • Machine price (specified by the machine property Machine Price)
• Installation Cost = Machine Price * Installation Cost Percent
  • Machine price (specified by the machine property Machine Price)
  • Installation cost percent (specified by the machine property Installation Cost Percent)
• Salvage Value = Machine Price * Salvage Value Percent
  • Machine price (specified by the machine property Machine Price)
  • Salvage value percent (specified by the machine property Salvage Value Percent)
• Machine Life (specified by the machine property Machine Life)

Annual Maintenance

Annual maintenance costs are specified as a percentage of machine price, adjusted by a factor that accounts for purchasing power:

Annual Maintenance = Machine Price * Annual Maintenance Percent * Purchasing Power

• Machine price (specified by the machine property Machine Price)
• Annual maintenance percent (specified by the machine property Annual Maintenance Percent)
• Purchasing power (specified by the Digital Factory variable Purchasing Power Index)

Energy to Run Machine

Energy costs depend on machine power and gas or electricity rates, together with annual machine uptime. Machine Power is typically taken from the manufacturer’s specifications. In some cases aPriori estimates the power by analyzing the energy usage of similar machines.

Energy to Run Machine = Annual Energy Usage *
Electricity or Gas Rate

• Annual Energy Usage = Power * Annual Earned Machine Hours
  • Power (specified by machine property Machine Power)
  • Annual Earned Machine Hours = Work Center Capacity * Machine Uptime Percent
    • Work Center Capacity = Hours per Shift * Number of Shifts * Working Days per Year  
      • Hours per shift (specified by Digital Factory variable Hours Per Shift)
      • Number of shifts (specified by Digital Factory variable Number of Shifts)
      • Working days per year (specified by Digital Factory variable Working Days Per Year
    • Machine Uptime Percent (specified by the machine property Machine Uptime Percent)
• Electricity or gas rate (depending on the machine in use— is specified by the Digital Factory variable Electricity Rate or Gas Rate)

Annual Supplies

aPriori estimates annual supply costs by considering the unique needs of each work center. In addition to general supplies, the estimates account for the need for supplemental equipment to support the work center (such as forklifts, conveyors, and so forth).

Annual supply costs are specified by the machine property Annual Supplies.

Imputed Interest

Imputed interest covers investment interest lost due to expenditures for the purchase of the machine. It is the average value of the machine over time, which is assumed to be midway between the initial value and the salvage value:

Imputed Interest = ((Total Cost Of Machine + Salvage Value) / 2) * Imputed Interest Rate

• Total Cost of Machine = Machine Price + Installation Cost
  • Machine price (specified by the machine property Machine Price)
  • Installation Cost = Machine Price * Installation Cost Percent
    • Machine price (specified by the machine property Machine Price)
    • Installation cost percent (specified by the machine property Installation Cost Percent)
• Salvage Value = Machine Price * Salvage Value Percent
  • Machine price (specified by the machine property Machine Price)
  • Salvage value percent (specified by the machine property Salvage Value Percent)
• Imputed interest rate (specified by the Digital Factory variable Imputed Interest Rate; varies by region)