# How do you apply the engineering approach?

Definition

The engineering approach consists in (1) identifying the resources consumed to make a product or provide a service, (2) measuring the quantity of each resource consumed to make a product or provide a service and finally (3) valuing this resource consumption with the price of these resources. Because of this strong emphasis on measurement (of outputs, inputs per output, and input prices), the method is also called the measurement method. The engineering approach typically produces estimates based on the following kinds of equations:

$V_c^d = \sum_{m=1}^{f} MU_m^d \times MP_m + \sum_{l=1}^{g} LU_l^d \times LP_l \\ \quad \\ FC_p = \sum_{k=1}^{h} EA_k$

where $$V_c^d$$ is the unit variable cost associated with the cost driver $$d$$, $$MU_m^d$$ is the usage (i.e. quantity consumed) of materials of type $$m$$ by the cost driver $$d$$, $$MP_m$$ is the price of materials of type $$m$$, $$LU_l^d$$ is the usage of labor of type $$l$$ by cost driver $$d$$, $$LP_l$$ is the price of the labor of type $$l$$, $$FC_p$$ refers to the committed fixed costs of the period p and $$EA_k$$ the available equipment of type $$k$$.

Labor usage is probably one of the most difficult estimate to obtain. Published tables of standard times for specific movement can be used to estimate the total time required to complete a task. Another approach is for industrial engineers to do it time and motion study, clocking the time required for each task.

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