ESTIMATING COST MODELS: Per-Unit Model.

The per-unit model uses a "per unit" factor, such as cost per square foot, to develop the estimate desired.

This is a very simplistic yet useful technique, especially for developing estimates of the rough or order-of-magnitude type. The per unit model is commonly used in the construction industry. As an example, you may be interested in a new home that is constructed with a certaintype ofmaterial andhas a specific construction style.Based on this information a contractormay quote a cost of $65 per square foot for your home. If you are interested in a 2000 square foot floorplan, your cost would thus be: 2000 x 65 =$130,000.

Other examples where per unit factors are utilized include

·Service cost per customer
·Safety cost per employee
·Gasoline cost per mile
· Cost of defects per batch
·Maintenance cost per window
· Mileage cost per vehicle
·Utility cost per square foot of floor space
·Housing cost per student

It is important to note that the per-unitmodel does not make allowances for economies of scale (the fact that higher quantities usually cost less on a per-unit basis). In most cases, however, themodel can be effective at getting the decisionmaker "in the ballpark" of likely costs, and it can be very accurate if accurate data are used.

EXAMPLE 2-5.

Use the per-unit model to estimate the cost per student that you will incur for hosting 24 foreign exchange students at a local island campground for 10 days. During camp you are planning the following activities:

·2 days of canoeing
·3 campsite-sponsored day hikes
·3 days at the lake beach (swimming, volleyball, etc.)
·Nightly entertainment

After calling the campground and collecting other information, you have accumulated the follow-
ing data:

· Vanrental from your city to the camp (one way) is $50 per 15 person van plus gas.
· Camp is 50 miles away, the van gets 10 miles per gallon, and gas is $1 per gallon.
· Each cabin at the camp holds 4 campers, and rent is $10 per day per cabin.
· Meals are $10 per day per camper; no outside food is allowed.
· Boat transportation to the island is $2 per camper (one way).
· Insurance/grounds fee/overhead is $fpetday.per camper.
· Canoe rentals are $5 per day per canoe, canoes hold 3 campers.
· Day hikes are $2.50 per camper (plus the cost for meals).
· Beach rental is $25 per group per half-day.
· Nightly entertainment is free.

SOLUTION

Transportation Costs

Living Costs

Entertfiinment Costs

Total cost

Thus, the cost per student would be $3966/24 = $165.25.

Thus, it would cost you $165.25 per student to host the students at theisland campground for the lO-day period. In this case the per-urtitmodel gives you a very detailed cost estimate (although its accuracy depends on the accuracy of your data and assumptions you've made).