Nicole is an engineer on temporary assignment at a refinery operation in Seaside. She has reviewed a cost estimate for $430,000, which covers some new processing equipment for the ethylene line. The equipment itself is estimated at $250,000 with a construction cost factor of 0.30 and an installation cost factor of 0.30. No indirect cost factor is listed, but she knows from other sites that indirect cost is a sizable amount that increases the cost of the line’s equipment. (a) If the indirect cost factor should be 0.30, determine whether the current estimate includes a factor comparable to this value, and (b) determine the cost estimate if the 0.30 indirect cost factor is used.
What will be an ideal response?
(a) h = 1 + 0.30 + 0.30 = 1.60
Let fI be the indirect cost factor
430,000 = [250,000 (1.60)] (1 + fI)
(1+ fI) = 430,000/[250,000(1.60)]
(1+ fI) = 1.075
fI = 0.075
The indirect cost factor used is much lower than 0.30.
(b) CT = 250,000[1.60](1.30)
= $520,000
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