Industrial engineering method

Industrial engineering method estimates a cost function from physical input-output relationships, such as time-and-motion studies, rather than from historical cost data.

ByHoang TruongUpdated July 11, 2026

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A time-and-motion study finds one unit technically requires 0.5 kg of material at €6 per kg, or €3.00, and 12 minutes of labour at €24 an hour, 0.2 times €24, or €4.80. The estimated variable cost per unit is €3.00 plus €4.80, or €7.80 — derived entirely from physical input-output specifications, with no reference to past cost records.

Where it fits

SubjectCost AccountingAdvancedTopicCost Behaviour & EstimationAdvanced

The formula

LaTeX

C = \sum_i q_i p_i

Variables

$C$: Estimated variable cost per unit (€)
$q_{i}$: Physical quantity of input i required per unit of output (varies)
$p_{i}$: Price per unit of input i (€)

Builds an estimated unit cost purely from engineering specifications, with no reference to past cost data.