Cost drivers operating hours

Operating hours, not direct labor hours or dollars, were established as the primary driver of manufacturing activity costs. Depending on the company, these operating hours could be in the form of machine hours, cycle hours, cell hours, line hours, or press hours. It was agreed that operators, who had always been considered direct labor, were either one of the indirect costs required for the equipment to operate or an independent activity whose costs should be added to the operating hour related costs based on the relationship between operating hours and operator hours. 

Example 13.4 A centrifugal pump is required to deliver 100 m3 of water per hour with an increase in pressure of 5 bar. If the driver for the pump is to be an electric motor with an efficiency of 90%, electricity costs 0.06 KW h-1, operating for 8300 hours per year, estimate the annual cost of power. 

Delivery costs will vary considerably with the individual biomass production operation. In general, a 40-ton low-bed truck with driver can be hired for about 180 per 24-hour day at current rates. Loading equipment with operators must be stationed at each end of the delivery run. In an ideal biomass production operation, i.e., one managed by a private farmer for profit, the land owner would probably own and help operate the truck and accessory equipment. An estimated delivery cost for solar-dried biomass on a 20-mile run would be 6.00 to 8.00 per ton (1980 dollars). 

Efficient distribution implies good asset utilization. The primary assets in this problem are vehicles and drivers. Minimization of the number of drivers and of the total cost of the routes are frequently used objectives. Efficiency needs to be achieved while level of service is maintained that is, service is provided to all customers in such a way as to satisfy aU time-window constraints. This problem has a very short-term planning horizon. Since customer stops may differ from day to day and all the stops are known only a few hours before the actual pickup-and-delivery operation, the problem needs to be solved a few hours before implementation. 

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