APPENDIX B. TECHNICAL DESCRIPTION OF THE REVERSE ENGINEERING

COST ESTIMATION METHODOLOGY

B.l

TABLE OF CONTENTS

INTRODUCTION ................................................... B.1-1

B.2 TEAR-DOWNS ..................................................... B.1-1

B.2.1 General Tear-Down Practice ..................................... B.1-1

B.2.2 Specific Product Class Features ................................... B.1-2

B.2.3 Weight Confirmation of Tear-down Results ......................... B.1-2

B.2.4 Final Confirmation of Tear-down Results ........................... B.1-2

B.2.5 General Tear-down Practice of "Hypothetical" Units .................. B.1-3

B.3 CREATING THE TEAR-DOWN BILL OF MATERIALS .................. B.1-4

B.4 ADDITIONAL PRODUCTION COST DATA ............................ B.1-5

B.4.1 Labor and Factory Overhead .................................... B.1-5

B.4.2 Depreciation ................................................. B.l-5

B.4.3 Parts and Materials .......................................... B.1-6

B.5 STRUCTURE OF THE COST MODELS ............................... B.1-11

B.5.1 Main Cost Model ............................................. B.1-12

B.6 SENSITIVITY ANALYSIS RESULTS ................................. B.1-16

LIST OF TABLES

Table B.2.1 Specific Features for Each Product Class ........................... B.1-2

Table B.4.1 Material Costs for Low-Bound, 5-Year Average, and High-Bound

Scenarios .................................................... B.l-7

LIST OF FIGURES

Figure B.3.1 Sample Bill of Materials ........................................ B.B-5

Figure B.5.1 Cost Model Structure .......................................... B.B-12

Figure B.5.2 Sample of Global Controls Sheet ................................. B.B-13

Figure B.5.3 Subassembly Breakdown ....................................... B.B-13

Figure B.5.4 Site Table Spreadsheet ......................................... B.B-14

Figure B.5.5 Components Sheet ............................................ B.B-14

Figure B.5.6 In-house Fabrication Process .................................... B.B-15

Figure B.5.7 Raw Materials Sheet .......................................... B.B-15

Figure B.6.1 Standard Deviations of Manufacturing Costs ....................... B.B-17

 EE-RM/STD-01-350 COMMENT 164
APPENDIX B. TECHNICAL DESCRIPTION OF THE REVERSE ENGINEERING

COST ESTIMATION METHODOLOGY

B.1 INTRODUCTION

The manufacturing cost estimation methodology-"reverse engineering"-is a detailed,

component-focused, activity-based technique for rigorously estimating the manufacturing cost of

a product. It considers direct materials, direct labor, and plant overhead costs.

This appendix describes the technical aspects of the approach as applied to residential

furnaces and boilers. Refer to Chapter 6 of this Technical Support Document (TSD) for more

information on assumptions and context.

B.2 TEAR-DOWNS

The first step in the reverse engineering process was to perform tear-downs on equipment

samples that are typical of today's furnaces and boilers. A tear-down is a thorough disassembly

of the equipment followed by a detailed inspection of the parts and subassemblies . The level of

resources allocated to different product classes and the unit selection process are described in

Chapter 6.

B.2.1 General Tear-Down Practice

Representative minimum, medium , and high-efficiency units were disassembled for

many product classes, as discussed in Chapter 6. The Department of Energy (DOE) attempted to

perform the disassembly in reverse of the actual assembly process ; the bill of materials (BOM)

reflects the order of these operations. From observations of industry practices, DOE assumed

that major sub-assemblies arrive pre-assembled at the final assembly line.

There were a few cases where individual manufacturer practices differed from industrywide practices, but the cost impact of these differences is within the tolerances of the analysis.

First, sub-assembly allocation practices varies between manufacturers -for example, some stage

sub-assemblies elsewhere and then add them to the final assembly line, while others build all

assemblies directly on the final assembly line. A reasonable middle ground was taken , and the

extremes assessed; assembly times varied on the order of minutes, well within the tolerances of

the analysis. Second, manufacturing out-sourcing practices vary between manufacturers. A

similar middle ground was taken, and extreme points evaluated; these variations again fell within

the tolerances of the analysis.

B-1

 EE-RM/STD-01-350 COMMENT 164
B.2.2 Specific Product Class Features

Each product class presented some specific features that differ from the general teardown practice that performed. Specific features for each product class are indicated in Table

B.2.1.

Table B.2.1 Specific Features for Each Product Class

Product Class Variation

Gas Furnace Clamshell and tubular constructions evaluated separately

and averaged.

Gas Boiler Cast iron heat exchangers are in-sourced at a sister plant

for one major manufacturer. DOE assumed the transfer

price would be equivalent to the open market value, and a

high level of automation is applicable.

Oil-fired Furnace None

Oil-fired Boiler Based on bills of materials of gas boilers and oil furnaces.

Mobile Home Furnaces None

Weatherized (Packaged) A/C coil model used rather than furnace/boiler model.

Furnaces This is fully described in the Technical Support Document

for the Residential Air-Conditioning Rulemaking.'

B.2.3 Weight Confirmation of Tear-down Results

DOE confirmed the cost and weight predictions using a number of methods. Initially,

DOE compared shipping weight predictions with published shipping weights. Since cost and

weight tend to be highly correlated in manufactured goods, the ability to accurately predict

weight is usually an important indication of the accuracy of the cost model. However, DOE

discovered that at least one equipment manufacturer had published erroneous weight data. Since

it could not verify all the published weights, DOE could not place confidence in the weight

verification.

B.2.4 Final Confirmation of Tear-down Results

For further confirmation of tear-down results, DOE solicited feedback and comments on

the cost analysis directly from the manufacturers of units that were torn down. As a disinterested

third party, DOE modeled their factory conditions and assumed production volumes, and

calibrated the model assumptions and results for their particular units. Final results, as discussed

in Chapter 6 of this TSD, were generated using a set of industry-wide aggregate assumptions to

avoid disclosure of company-specific sensitive cost data.

B-2

 EE-RM/STD-01-350 COMMENT 164
B.2.5 General Tear-down Practice of "Hypothetical" Units

Although DOE had detailed information on a number of units physically torn down, it

needed many more samples to span a broad range of efficiency levels in each of the product

classes. To cost these samples, DOE created "hypothetical" units. For these units, DOE started

from a calibrated tear-down BOM, and then modified the BOM to obtain the desired efficiency

level. Typically, for any change in efficiency level, there are numerous paths to take and a

variety of hardware changes that can be made to obtain a particular efficiency level. According

to existing literature, three options appear to be the most promising for gas furnaces-increased

heat exchanger area, improved heat transfer coefficient, and derating (see discussion in Chapter

6).

Aside from the two design options selected for non-weatherized gas furnaces, a few

others were considered for other product classes. These include:

1. Electronic ignition for boilers.

2. Two-stage Modulation. There are no efficiency gains attributed to modulation. Any

efficiency gains can be attributed to the use of an ECM blower motor.

3. Insulation. For weatherized furnaces only, additional insulation can improve AFUE

ratings.

In addition, design options that affect fuel and electricity consumption were costed.

These include:

1. Two-stage Modulation-Uses a two-speed combustion air fan, a dual flow rate gas valve,

a multi-speed blower, and associated electronic controls.

2. Continuous Modulation-Uses a continuously variable combustion air fan and gas valve,

a multi-speed blower, and associated sensors and controls.

3. Interrupted Ignition (Oil-Fired equipment only)-Uses interrupted firing of the burner

ignitor rather than continuous spark ignition, and associated controls.

4. Fan Atomized Burner (Oil-Fired equipment only) with modulation-Uses a fan and ECM

motor to atomize the oil. Prototypes exist; conservative costs have been used to reflect

the relatively undeveloped nature of this technology.

For each hypothetical tear-down, DOE modified the BOM hardware to reflect applicable

design options from the list above, costed each design option path, and averaged the results.

B.3 CREATING THE TEAR-DOWN BILL OF MATERIALS

DOE used the tear-down process to create a complete and structured BOM for each torndown and hypothetical unit. In the process of completely dismantling each piece of the unit,

DOE characterized every part according to weight, dimensions, material, quantity, and the

manufacturing processes used to fabricate and assemble it.

B-3

 EE-RM/STD-01-350 COMMENT 164
The BOMs incorporate all materials, components, and fasteners with estimates of raw

materials and purchased parts and sub-assemblies. DOE based its sourcing assumptions on

previous industry experience, recent information in trade publications, and discussions with

high- and low-volume original equipment manufacturers (OEMs). To augment its understanding

of the industry's manufacturing practices, DOE also visited several manufacturing plants. These

visits focused on observing and characterizing current manufacturing practices.

Figure B.3.1 illustrates a small section of a structured bill of materials. It shows:

® Serial Number: Assigned during disassembly.

® Part Number: Assigned during disassembly.

® Description: A description of the part. Subassemblies are grouped.

® Quantity: Number of parts assembled in a given step for a given subassembly.

® Extended Quantity: Flat bill-of-materials.

® V: This entry denotes whether a part is a purchased component or fabricated in-house.

® Material: Material type or component number

® OD, Length, Width, Depth, Thickness: Physical parameters that describe the finished

part.

® Extended Weight: Final weight of the part, in grams.

® Extended Material Cost: Final material cost of the part (calculated), accounting for

scrap losses but excluding required assembly, painting, fabrication, or joining costs.

® Extended Assembly Time : The manual labor (in seconds) required to handle all parts

and assemble them into the unit.

 EE-RM/STD-01-350 COMMENT 164
Scrial'r1 Fart 9 Dcscription Qty Ex1

C1ty

u? 1.4.defial Length

11lidth

fID

{cm)

bepth

I (cm)

l41lit

(cm)

Cxt

Wei j1i

(y)

Ext mat

Cost

(I(S0)

Ert AS3j

Time

(x1

6000 10.0 Model2 ."•,asrrr.Ylr 1 1 110 79.3 69 XX. XX XX.XX XX.XX

6001 1.1 Pac:lsa:^ ii SubAssy 1 1 11417 $35.37 111

6002 1.1.1 Banding 1 1 Y 18anr1 3411 1 I? 71111 33

6003 1.1.2 Box End 2 22 Y L.xrrlSd 0.4 11, 22' •'11 1 90 11

6004 1.1.3 Cardboard Corners 4 4 Y I^arrj d 104 S 8 016 20112 814.35 43

6005_ 1.1.4 Cardboard Body 1 I 'f ^;rdBd 2735 191] 11

6006 1.1.5 Pallet 1 1 Y Canlp# U '122 122 . 503;.1 ! 1L1-3 12

6007 1.2 Label SubAssy 1 1 30 $17.11 U.0

6008 1.2.1 Efficiency I Labal 1 1 V Paper 10 14 0.013 4 ^::I CI I 17.6

6009 1.2.2 UPC Label 1 1 Y Pappr 10 6 0.016 I ?).01 1.1.6

6010 1.2.3 Energy Star Label 1 1 Y Mvlar a 5 0.016 1 $0 05 17.11

6011 1.2.4 CA Warning Label 1 1 1 Prljlar DL 5 U.CI16 I $ 115 17.1

6012 1.2.5 a Model Label 1 I Y Mylar 1S. in 0.036 8 'hI15f1 17.8

Figure B.3.1 Sample Bill of Materials

B.4 ADDITIONAL PRODUCTION COST DATA

The tear-down process and the development of the structured BOMs provided the starting

points for estimating production costs, but DOE still needed information on manufacturing

operations, part and material prices, wages, plant equipment amortization, and plant overhead.

Chapter 6 describes the assumptions and data sources. This section briefly describes the

processes DOE used to gather the data and how it used them.

B.4.1 Labor and Factory Overhead

DOE obtained information on equipment and tooling costs, typical process cycle times,

and materials used for fabrication from the proprietary TIAX (a collaborative product and

technology development firm) manufacturing databases. Plant equipment suppliers provided

details concerning equipment capabilities and processing parameters (cycle times, scrap rates,

etc.). Fabrication cycle rates are directly entered into the cost model and depend on part

complexity and processes used.

B.4.2 Depreciation

Depreciation, or amortization, is the accounting process by which capital costs are

allocated to production volume. Amortization occurs over the whole period of time that it takes

to produce a product, so that at the end of that time, all capital costs are accounted for in the full

cost of producing the product. For example, if a manufacturer produces one million furnaces

over ten years and amortizes a $10 million investment over the same ten years, each furnace

produced during that time would include $10 in amortization charges.

The methodology DOE used to allocate depreciation depended on whether it is assumed

that the plant machinery is dedicated or non-dedicated to the production of the sample product.

Dedicated machinery is tied solely to the production of the sample product. During times when a

piece of dedicated machinery is not needed for that product, it sits idle. The entire capital cost of

B-5

 EE-RM/STD-01-350 COMMENT 164
a piece of dedicated machinery is amortized across the annual volume of the sample product.

Conversely, non-dedicated machinery may be used to produce another product when it is not

needed for the sample product. Only a fraction of the capital cost of non-dedicated machinery is

allocated to the sample product, based on the time the machinery was used to produce the sample

product. For example, a non-dedicated press that was used 55 percent of the time to produce the

sample product would allocate 55 percent of its depreciation charges to the sample product and

45 percent to the other products with which it is associated . A dedicated press, on the other

hand, would allocate 100 percent of its depreciation to the sample product, even if its utilization

was 55 percent, since the press is not used for any other production.

DOE assumed that all fabrication machinery is non-dedicated , unless it is part of an

assembly line (welding, or bending, directly on the line). Due to the seasonal nature of the

furnace and boiler business, some manufacturers have off-season uses for their fabrication

machinery (e.g., to make air conditioners).

DOE also allocated labor to operate a piece of machinery based on whether the

machinery is dedicated or non-dedicated.

As equipment utilization rates approach 100 percent, the costs associated with dedicated

versus non-dedicated equipment costs become equal . However, few dedicated pieces of

equipment ever achieve 100 percent utilization due to lack of demand , capacity mismatches

between process steps, scheduled downtime , etc. Thus, non-dedicated equipment results in

lower overall costs per part, as depreciation , maintenance, and other costs are only assessed on

the basis of how much time each part uses a piece of equipment . As equipment types vary, so do

the manufacturing equipment and labor requirements . Depreciation charges therefore also vary

across equipment types.

B.4.3 Parts and Materials

Cost estimates for raw materials and purchased components were drawn from

manufacturing databases and supplemented with information obtained from manufacturer and

supplier sources. DOE adjusted the cost estimates as appropriate to include price discounts

typically seen in the industry as the result of high-volume purchases.

The cost of purchased components and most materials were based primarily upon the

ANOPR engineering analysis prices adjusted for inflation . In the NOPR, DOE used a five-year

average of material prices from years 2000 through 2004 . 71 FR 59216 . For the final rule, DOE

revised the material price averages used in the cost model to include material price data from

2005 and 2006. Therefore, DOE calculated a new five -year average material price for cold

rolled steel, aluminized steel, galvanized steel, painted cold rolled steel, and stainless steel. DOE

used the BLS Producer Price Indices (PPIs) for cold rolled steel and stainless steel spanning

from 2002 to 2006 to calculate new averages , which incorporate the changes within each

material industry and inflation . Finally, DOE adjusted all averages to 2006$ using the

gross-domestic-product implicit-price deflator.

B-6

 EE-RM/STD-01-350 COMMENT 164
DOE also created two scenarios for the material-price-sensitivity analysis: a low-bound

and a high-bound scenario. DOE calculated the low-bound scenario by finding the year ranging

between 2002 and 2006 with the lowest cost of cold rolled steel, which was 2002. DOE then

used the annual prices for all other materials in 2002 and applied a 15-percent reduction to each

of the raw material costs. Likewise, DOE calculated the high-bound scenario using the annual

average price for each of the raw materials from 2006, when prices of raw materials were

uncharacteristically high. DOE expressed both the low-bound scenario and the high-bound

scenario in 2006$. DOE evaluated the results of the material-price-sensitivity analysis, using all

three material-cost scenarios, in the engineering analysis and then used them as inputs for the

LCC analysis. Table B.4.1 shows the material cost for the five-year average, the high-bound

scenario, and the low-bound scenario.

Table B.4.1 Material Costs for Low-Bound, 5-Year Average, and High-Bound Scenarios

Low-Bound

Material

Cost (2006$)

5-Year Average

Material Cost

(2006$)

High-Bound

Material

Cost (2006$)

Non-weatherized gas furnaces

78-percent AFUE - Baseline $241.46 $264.24 $276.12

80-percent AFUE - Increased Heat Exchanger Area $243.19 $267.08 $279.53

80-percent AFUE - Increase Heat Transfer

Coefficient

$243.70 $267.80 $280.38

80-percent AFUE - Modulation (2-stage) $386.16 $410.04 $422.50

81-percent AFUE - Increased Heat Exchanger Area $256.53 $282.27 $295.70

81-percent AFUE - Improved Heat Transfer

Coefficient

$255.55 $280.40 $293.37

81-percent AFUE - Modulation (2-stage) $399.51 $425.25 $438.68

90-percent AFUE - Baseline Condensing $356.05 $422.85 $461.26

92-percent AFUE - Increased Heat Exchanger Area $434.38 $487.76 $521.11

92-percent AFUE - Modulation (2-stage) $577.25 $630.33 $664.50

92-percent AFUE - Modulation (Continuous) $577.25 $630.33 $664.50

96-percent AFUE - Modulation (Continuos) $706.88 $909.86 $1,022.68

Weatherized gas furnaces

78-percent AFUE - Baseline $557.70 $589.42 $605.97

80-percent AFUE - Increased Heat Exchanger Area $559.43 $592.25 $609.38

B-7

 EE-RM/STD-01-350 COMMENT 164
80-percent AFUE - Improved Heat Transfer

Coefficient

$559.98 $592.81 $609.93

81-percent AFUE - Increased Heat Exchanger Area $561.92 $596.61 $614.70

81-percent AFUE - Improved Heat Transfer

Coefficient

$561.19 $594.02 $611.14

82-percent AFUE - Increase Heat Exchanger Area,

Stainless Steel, and Low Bound GAMA Estimates

$600.64 $649.76 $678.37

82-percent AFUE - Increase Heat Exchanger Area,

Stainless Steel, and High Bound GAMA Estimates

$772.83 $891.76 $968.77

83-percent AFUE - Increase Heat Exchanger Area,

Stainless Steel, and Low Bound GAMA Estimates

$613.20 $667.42 $699.57

83-percent AFUE - Increase Heat Exchanger Area,

Stainless Steel, and High Bound GAMA Estimates

$785.40 $909.42 $989.97

Mobile home furnaces

75-percent AFUE - Baseline $177.49 $208.00 $223.91

80-percent AFUE - Increased Heat Exchanger Area $205.23 $237.14 $253.78

80-percent AFUE - Modulation (2-stage) $345.09 $375.60 $391.51

81-percent AFUE - Increased Heat Exchanger Area $208.89 $240.05 $256.30

81-percent AFUE - Modulation (2-stage) $350.41 $380.91 $396.82

82-percent AFUE - Increased Heat Exchanger Area $217.75 $249.08 $265.42

82-percent AFUE - Modulation (2-stage) $358.91 $389.41 $405.33

90-percent AFUE - Condensing $288.84 $327.45 $348.84

Oil-fired furnaces

78-percent AFUE - Baseline $383.55 $415.21 $431.74

80-percent AFUE - Increased Heat Exchanger Area $385.67 $417.34 $433.86

81-percent AFUE - Increased Heat Exchanger Area $387.64 $420.59 $437.77

81-percent AFUE - Interrupted Ignition $401.08 $432.75 $449.27

81-percent AFUE - Fan Atomized Burner with

Two-stage Modulation

$528.98 $561.93 $579.11

82-percent AFUE - Increased Heat Exchanger Area $389.06 $422.62 $440.14

82-percent AFUE - Interrupted Ignition $406.59 $440.16 $457.67

82-percent AFUE - Fan Atomized Burner with

Two-stage Modulation

$530.40 $563.96 $581.48

B-8

 EE-RM/STD-01-350 COMMENT 164
83-percent AFUE - Increased Heat Exchanger Area $390.47 $424.66 $442.50

83-percent AFUE - Interrupted Ignition $408.01 $442 . 20 $460.04

83-percent AFUE - Fan Atomized Burner with

Two-stage Modulation

$531.81 $566.00 $583.84

84-percent AFUE - Increased Heat Exchanger Area $391.89 $426.70 $444.86

84-percent AFUE - Interrupted Ignition $409.42 $444.24 $462.40

84-percent AFUE - Fan Atomized Burner with

Two-stage Modulation

$ 533.23 $568.04 $586.20

85-percent AFUE - Increased Heat Exchanger Area $396.13 $432.81 $451.95

85-percent AFUE - Interrupted Ignition $413.66 $450.35 $469.49

85-percent AFUE - Fan Atomized Burner with

Two-stage Modulation

$537.47 $574.15 $593.29

Gas boilers

80-percent AFUE - Baseline $375.13 $420.90 $444.78

81-percent AFUE - Improved Heat Transfer

Coefficient and Electronic Ignition

$406.51 $454.60 $479.69

81-percent AFUE - 2-stage Modulation and

Induced Draft

$463.66 $515.99 $543.29

82-percent AFUE - Improved Heat Transfer

Coefficient and Electronic Ignition

$413.58 $462.20 $487.56

82-percent AFUE - 2-stage Modulation and

Induced Draft

$470.73 $523.58 $551.16

83-percent AFUE - Improved Heat Transfer

Coefficient and Electronic Ignition

$422.35 $471.61 $497.32

83-percent AFUE - 2-stage Modulation and

Induced Draft

$479.29 $532.78 $560.69

84-percent AFUE - Improved Heat Transfer

Coefficient and Electronic Ignition

$425.55 $478.44 $506.03

84-percent AFUE - 2-stage Modulation and

Induced Draft

$482.69 $539.81 $569.62

85-percent AFUE - Improved Heat Transfer

Coefficient and Electronic Ignition

$428.96 $485.47 $514.96

85-percent AFUE - 2-stage Modulation and

Induced Draft

$486 . 11 $546.86 $578.56

86-percent AFUE $493.46 $557.77 $591.32

91-percent AFUE $746.16 $844.76 $895.71

B-9

 EE-RM/STD-01-350 COMMENT 164
99-percent AFUE $1,069.42 $1,224.52 $1,305.62

Oil-fired boilers

80-percent AFUE - Baseline $534.94 $551.22 $559.72

81-percent AFUE - Increased Heat Exchanger Area $535.60 $552.54 $561.39

81-percent AFUE - Interrupted Ignition $553.13 $570.08 $578.92

82-percent AFUE - Increased Heat Exchanger Area $536.25 $553.86 $563.05

82-percent AFUE - Interrupted Ignition $553.79 $571.40 $580.58

82-percent AFUE - Fan Atomized Burner with 2-

stage Modulation

$677.59 $695.20 $704.39

83-percent AFUE - Increased Heat Exchanger Area $536.91 $555.18 $564.71

83-percent AFUE - Interrupted Ignition $554.45 $572.72 $582.25

83-percent AFUE - Fan Atomized Burner with 2-

stage Modulation

$678.25 $696.52 $706.05

84-percent AFUE - Increased Heat Exchanger Area $537.57 $556.50 $566.38

84-percent AFUE - Interrupted Ignition $555.10 $574.03 $583.91

84-percent AFUE - Fan Atomized Burner with 2-

stage Modulation

$678.91 $697.84 $707.72

85-percent AFUE - Increased Heat Exchanger Area $538.89 $559.14 $569.70

85-percent AFUE - Interrupted Ignition $556.42 $576.67 $587.24

85-percent AFUE - Fan Atomized Burner with 2-

stage Modulation

$680.22 $700.48 $711.04

86-percent AFUE - Increased Heat Exchanger Area $540.20 $561.77 $573.03

86-percent AFUE - Interrupted Ignition $557.74 $579.31 $590.57

86-percent AFUE - Fan Atomized Burner with 2-

stage Modulation

$681.54 $703.11 $714.37

90-percent AFUE $840.06 $869.02 $884.13

95-percent AFUE $1,336.65 $1,378.52 $1,400.36

As purchased components make up much of the unit costs, DOE paid special attention to

establishing accurate OEM-level price data. Through manufacturer submissions, industry

literature, and active research, DOE was able to ascertain the exact specifications for the

majority of components used in the units under investigation. For the relatively few purchased

components DOE could not identify, it substituted parts from comparable equipment. For

example, a manufacturer's technical data sheet may report that a sample furnace uses a certain

B-10

 EE-RM/STD-01-350 COMMENT 164
type of motor supplied by a particular company, but may not state the precise size or part

number. In the cases when distributors could not positively identify the part, industry experts

would compare the known attributes of similar units (such as horse power, voltage, etc.) with

those of the sample equipment. DOE would then select a specific motor size and type based on

an interpolation of the available data.

DOE then consulted with local distributors, wholesalers, parts suppliers, and OEMs to

determine high-volume pricing. DOE applied a discount to the prices received from each of

those sources based on their place in the distribution chain. These discounts were based on

markup data and DOE's previous experience in the industry. The many different data'sources

and the large purchased parts list also allowed DOE to do some cross-checking of price data and

discounts. DOE selected those that, most likely reflected actual prices to OEMs. The discounts

on each component are a function of the total dollar volume of a typical OEM's account with a

typical supplier. Since DOE is modeled high volume OEMs who deal with one supplier for each

component, this resulted in substantial discounts relative to retail or wholesale prices. In

addition, OEM manufacturers commented on assumed OEM pricing, as detailed in section B.2.4

of this appendix.

B.5 STRUCTURE OF THE COST MODELS

Once DOE had collected all of the information required to estimate production costs for

each sample, DOE used Excel spreadsheet models to perform the required calculations. In

addition, DOE used Boothroyd-Dewhurst, Inc. (BDI) Design for Assembly software to calculate

assembly times, and BDI's Concurrent Costing software to estimate casting and machining

processes.' Figure B.5.1 illustrates the structure and relationship of the spreadsheets and

software used to make the estimates.

 EE-RM/STD-01-350 COMMENT 164
Mfg Site Dependent Global Controls Materials

Variables (labor rate ,

etc.) Sheet Sheet

Site Table

Sheet

t

Cost Global

Data Variables

BOM Sheets

(1 per teardown)

N

Purchased

Part Costs

I

Part Data Assy Time

BDI

Design For

Assembly

BDI

Concurrent

Costing

VBA Macros, Portability file data transfer

Figure B.5.1 Cost Model Structure

B.5.1 Main Cost Model

Components

Sheet

Cast, Machined

Part Cost Data

The main model serves to hold data and perform the calculations that determine the

production cost of the final assembled equipment. It contains a number of worksheets that

perform different functions.

Global Controls Sheet. This worksheet sets parameters such as production volume and

wages; it also displays the cost results by sub-assembly. The basic parameters (e.g., days

available per year) of the Global Controls sheet are linked to multiple BOM sheets, one for each

tear-down. A sample section of those controls is shown in Figure B.5.2. Shaded fields are also

varied in the sensitivity analysis.

Material

Costs

Processes

Sheet

Equipment Cost, Ji

Cycle Times

B-12

 EE-RM/STD-01-350 COMMENT 164
Designed Fabrication Work days per Year: 240

Designed Assembly Work Days per Year: 240

Runtimo per Shift (hrs) : 8

EgUiprnant Uptim© I^t' :

Designed Assembly Worker Downtime (%);

Auxiliary Eluipineni + Installation Cost: lir"1 yin

Bullding Depreciation Life (Yea: s): 25 l

Tooling Deprecialion (Years):

Ratio of Walkways to Fabric itton + Storarge: 20%

Yearly Maintenance Ratio (as 'i'o of Equipment Cost)

Utility Cost (`% of factory cost)

Invest. Relativity Factor (%) I

Avg De.prerciation Life (°/a} W

Freight Factor: 3%

Freight Cost{ Irn ft}: $1.66

Benefitc• 40%

Building Cost ($fsf). 120

Figure B.5.2 Sample of Global Controls Sheet

The Global Controls sheet also shows costs broken down by sub-assembly and cost

category. Figure B.5.3 features costs by major sub-assembly and cost type. Cost breakdowns to

this fine level allowed DOE to zero in on the differences between equipment across efficiency

levels and facilitated the calibration and industry review processes.

YY Class

XX% AFU E Material Labor Overhead

Blower

Casing

Circulator

Electrical/Controls

Exterior Components

Fuel Control

Heat Exchanger

Inducer

Packaging

Total

Grand Total

Figure B.5.3 Subassembly Breakdown

Site Table Sheet. Variables that vary from manufacturing site to manufacturing site

were isolated on the Site Table sheet. These include labor rates, purchasing power (effective

production volumes for components shared across many product families), and a number of other

variables. (see Figure B.5.4). After individual manufacturer data was gathered, an industry

average were generated, along with two sub-group averages-large and small manufacturers. To

avoid disclosure of manufacturing site-specific information, the industry average column was

B-13

 EE-RM/STD-01-350 COMMENT 164
used to generate all numbers in this TSD. The ranges found from individual manufacturers were

used in the sensitivity analysis.

Industry Avg Small Mfg. Largo Mfg. Mfg A Mfg B Mfg C

Assembly Factor

assy shifts / day

Design vs. Actual Ca pacity Ratio

Direct Labor Rate

lab shifts / day

Ind:Dir Labor Ratio

Management Span (people/manager)

Pay Difference Manager to Line worker

Production Volume

Purchasing Power

rework rate (all repaired)

Lot size (days of inventory)

JIT ratio

Figure B.5.4 Site Table Spreadsheet

Components Sheet. The Components sheet contains two types of data: major purchased

components unique to each model; and minor, common purchased components used by every

model.

Major Purchased Components. The Components sheet represents the output of the

Subcontractor manufacturing component database, which logs multiple quotations at a variety of

production volumes to build a production volume versus cost curve. These outputs are shown in

the Ql to Q1000000 columns in Figure B.5.5. Depending on quantity per model and production

volumes, the component cost is fed to the BOM sheet through the CompCostX column, which

queries the result by unit number. These tables determine at least 45 percent of total cost.

Component

ID

Comp Class

Name

"P

SubClass

NaMnnutachirer

Name '.ut f. _iri0ee

os

Model ID

Number Q1 01000 Q10000 Q100000 01000000 TotQtyl ComyCostt

1 0 0 Dummy

2 Electronic PCB Control Board, Damper

3 Electronic PCB Control Board, Mfg A

4 Electronic PCB Control Board, Mfg B

5 Mechanical Motor Blower Motor

6 Mechanical Motor Blower Motor

7 Mechanical Motor Blower Motor

8 Mechanical Fan Blower W eel

9 Mechanical Fan Blower Wheel

10 Mechanical Fan BlowerWheel

11 Mechanical Pump Circulator with gaskets

12 Mechanical or Blower Motor

13 Mechanical Motor Blower motor

14 Electronic Switch Dual Pressure Switch SubAssy

15 Mechanical Fan Blower Wheel

16 Mechanical Fan Blow rWheel

17 Fuel S stem Valve Gas valve

16 Fuel System Valve Gas Valve Assy

19 Fuel System Valve Gas Valve Assy

20

Figure B.5.5 Components Sheet

Minor, Common Purchased Components. These include items such as connectors, wire,

fasteners, board transformers, and other smaller parts that OEMs are likely to purchase from

outside suppliers. From the Subcontractor manufacturing component database, DOE gathered

price quotations from multiple sources (suppliers, distributors, prior experience) in quantities

throughout the price versus volume curve. In the same fashion as for major purchased

components, minor component costs are passed to the BOM sheets.

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 EE-RM/STD-01-350 COMMENT 164
Figure B.5.6 shows modeled fabrication processes; material cost in these cases is

determined by the part weight times a cost per gram as detailed on the Raw Materials sheet,

Figure B.5.7. For out-sourced parts, DOE applied a vendor profit markup of 1.2. DOE assumed

that even in cases of a sister company manufacturing sub-components, this markup will capture

the transfer price and the profit of the sister unit.

rocess

ID Class Name

u ass

Name Machin. Name Capacity

apRT y

Units

Capacity

Rate

Capacity

Rate Units

cycle Time

(minutes)

rprecm ion

Life (Years) Q1

C apita l

Cost (S)

1 None None Dummy Process

2 Material Handling Convey Conveyor

3 Material Removal Tube Tube Cut

4 Deformation Forming Tube Tube Bend

5 Deformation Forming Tube Roll Form

6 Deformation Forming Tube Tube Coil

7 Sheet Metal Stam p Large Press

8 Sheet Metal Stamp Med Press

9 Sheet Metal Stamp Sm Press

10 Sheet Metal Bend Press Brake

11 Sheet Metal Blank Blanking

12 Sheet Metal Stam p Turret Punch

13 Material Removal Machine Machining Center

14 Casting Plastic

_

Injection Mold

15 Casting Metal Sand Cast

16 Casting Metal Investment Cast

17 Finishing Powder Coat

_

Paint

18

_

_

Material Removal Stam p

_

Plasma

19

_

_

Assembly Adhesive Adhesive Bonding

20 Assembly Weld Seam Welding

21 ... ... ...

Figure B.5.6 In-house Fabrication Process

Class Name Subclass Name Material Full Name

Physical

Form Name Density (glcc( Q1 01000 Q10000 Q100000 Q1000000

Totwtl

(g)

MatCostl

($Ig)

Polymer Thermoplastic ABS Pellet 1.06

Metal Commodity Metal Aluminum Sheet 2,70

Metal Commodity Metal Alumized Steel Sheet 7,87

Metal Commodity Metal Aluminum Tube Tube 2.70

Polymer Commodit Metal Strap Band N/A N/A

Figure B.5.7 Raw Materials Sheet

Bill-of-Materials Sheet. The Bill-of-Materials sheet (as illustrated in Figure B.3.1 and

discussed in section B.3) serves as a structured assembly tree, summarizes fabrication and

assembly tool data, and calculates production costs based on the price of the part or material and

the labor and machinery required to fabricate or assemble it. The BOM sheet also adjusts many

other costs in response to changes in physical parameters. For example, the model adjusts

baseline sheet metal sizes to incorporate different enclosure sizes. Also, the size of the fiberglass

insulation is a function of the sheet metal it has to cover and the efficiency level of the unit

(insulation is thicker at higher efficiencies). Many fastener quantities and labor costs are also a

function of the sheet metal walls they have to secure. The result is that every unit cost estimate

is unique, using the initial BOM as a starting point.

Labor, parts, materials, and depreciation costs are aggregated by sub-assembly and linked

back to the Global Controls page.

Processes Sheet. This sheet, from the Subcontractor manufacturing database, is a list of

process costs for all the plant machinery involved in the production of furnaces and boilers. An

implicit assumption is that the plant equipment required to produce lower-efficiency samples is

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 EE-RM/STD-01-350 COMMENT 164
also able to produce higher-efficiency samples without any modification. The process data show

installed equipment costs, equipment capacity, depreciation life, whether equipment is dedicated,

cycle times, labor requirements per station, consumables costs, etc. The installed costs include

price quotations for the equipment plus markups to account for installation labor and auxiliary

equipment (e.g., electrical service to the equipment).

B.6 SENSITIVITY ANALYSIS RESULTS

Chapter 6 of the TSD described the Monte Carlo analysis process. The results are

presented in Figure 6.4.1 in the form of standard deviation values. These results are used as an

input for the LCC analysis. Confidence intervals are easily calculated using standard deviation

values.

 EE-RM/STD-01-350 COMMENT 164
Material Labor Overhead Shipping Total

Non-weatherized Gas-fired Furnaces

Baseline $5 $3 $2 $1 $6

80%AFUE $4 $2 $1 $1 $5

81% - 83% AFUE $5 $3 $2 $1 $6

Non-condensing Furnaces with Modulation $8 $3 $2 $1 $9

90% AFUE $3 $3 $4 $1 $6

92% AFUE $10 $3 $6 $1 $12

92% with Modulation $15 $3 $6 $1 $16

96% AFUE $35 $3 $6 $1 $36

Weatherized Gas-fired Furnaces Same as Non-weatherized

Mobile Home Furnaces

75% AFUE $5 $2 $1 $1 $5

80% AFUE $6 $2 $1 $1 $6

90% AFUE $30 $10 $3 $1 $32

Oil-fired Furnaces

Baseline $6 $10 $6 $1 $14

Other Options $10 $10 $6 $1 $15

Gas Boilers

Baseline $4 $4 $3 $1 $7

81% - 84% AFUE $4 $4 $3 $1 $6

Gas Boiler with Modulation $10 $4 $3 $1 $11

88% AFUE $30 $10 $3 $1 $32

91 % AFUE $75 $15 $5 $1 $77

99% AFUE $100 $20 $10 $1 $102

Oil-fired Boilers

Baseline $10 $4 $3 $1 $11

81%-86%AFUE $10 $4 $3 $1 $11

Oil Boiler with Other Options $10 $10 $6 $1 $15

90% AFUE $75 $15 $5 $1 $77

95% AFUE $100 $20 $10 $1 $102

Figure B.6.1 Standard Deviations of Manufacturing Costs

 EE-RM/STD-01-350 COMMENT 164
REFERENCES

U.S. Department of Energy-Office of Building Research and Standards. Technical

Support Document: Energy Efficiency Standards for Consumer Products: Residential

Central Air Conditioners and Heat Pumps. 2000. U. S. Department of Energy.

Washington, DC. Report No . LBNL-47463.

<http://www. eere. energy .gov/buildings/app liance_standards/residential/ac_central. html>

2. U.S. Department of Energy-Office of Building Technologies. Technical Support

Document: Energy Conservation Program for Consumer Products: Energy Conservation

Standards for Residential Furnaces and Boilers - ANOPR Version. 2003. U.S.

Department of Energy. Washington, DC. Report No. LBNL-53984.

3. Boothroyd Dewhurst. Design for Manufacture and Assembly (DFMA). (Last accessed

December 17, 2000, <http://www.dfma.com/software/dfaben.html>

 EE-RM/STD-01-350 COMMENT 164