Direct Cost in Shipbuilding:
Concept: Direct costs in shipbuilding refer to expenses that are directly associated with
the construction, launching, and delivery of a ship. These costs are specific to the project
and cannot be attributed to materials or labor directly. They include various
expenditures necessary for the completion and transportation of the ship.
Formula:
Direct Cost=Launching Expenses+Transportation Expenses+Installation and De
livery Expenses+Insurance Expenses+External Supervision Expenses+Subcontr
actor’s Charges+Other Direct ExpensesDirect Cost=Launching Expenses+Trans
portation Expenses+Installation and Delivery Expenses+Insurance Expenses+E
xternal Supervision Expenses+Subcontractor’s Charges+Other Direct Expenses
Examples:
1. Launching Expenses:
• Cost associated with the actual launch of the ship.
2. Transportation Expenses:
• Costs related to transporting the ship.
3. Installation and Delivery Expenses:
• Expenses incurred during the installation and delivery processes.
4. Insurance Expenses:
• Cost of insurance coverage from the contract signing to the ship's delivery.
5. External Supervision Expenses:
• Costs related to supervision by external entities like classification societies,
statutory bodies, and owner's representatives.
6. Subcontractor's Charges:
• Charges incurred if specific tasks, such as steel fabrication and assembly,
are subcontracted to vendors.
7. Other Direct Expenses:
• Any additional costs directly linked to the shipbuilding project.
Financial Considerations:
1. Negotiated Contract and Stage Payment Agreement:
• Owners and builders often negotiate contracts with stage payment
agreements to align expenses with received payments.
2. Financial Institution Assistance:
• If the builder requires financial assistance, the repayment to financial
institutions becomes a direct expense on the ship.
3. Delayed Payments Impact:
• Delayed payments, whether due to delayed production or owner default,
result in a loss of the real value of money.
• Penalties may be incurred by the builder for delayed production, and
owners may need to compensate for delayed payments.
In summary, direct costs in shipbuilding encompass a range of specific expenses directly
related to the construction and delivery of the ship. The effective management of these
costs involves negotiations, agreements, and considerations for potential delays in
payments.
The statement "Direct costs can be directly billed to the ship but cannot be attributed to
material or labor" means that certain expenses in a project, specifically in shipbuilding in
this context, are directly associated with the ship itself and can be directly charged or
allocated to the project. However, these costs are distinct from the costs directly related
to materials and labor.
In other words:
• Direct Billing to the Ship: These costs are incurred in the process of
constructing, launching, and delivering the ship, and they are considered integral
to the project. As such, they are billed directly to the overall cost of the
shipbuilding project.
• Not Attributed to Material or Labor: Unlike material costs (raw materials or
components) and labor costs (wages for workers), these direct costs are separate
and cannot be directly linked to the materials used or the labor employed in the
shipbuilding process.
Examples of such direct costs, as mentioned in your previous context, include launching
expenses, transportation costs, installation and delivery expenses, insurance during the
contract period, expenses related to external supervision, and subcontractor charges.
These are expenditures that are specific to the construction and delivery of the ship but
are not directly tied to the materials or the labor force involved in the shipbuilding
process.
LABOUR COST
1. Labour Cost = Labour rate * Number of mandays for the job in question:
• When to use: Use this formula when you have a clear idea of how many days it will
take to complete a specific job.
• Example: If you know a construction project requires 10 days of work, and the labor
rate is $100 per day, then the labor cost would be $100 * 10 = $1,000.
2. Labour Cost = Labour rate * (Total quantum of work / Work per labour manday):
• When to use: Use this formula when the job's scope can vary, and you want to
calculate costs based on the total amount of work rather than a fixed number of
days.
• Example: If you're manufacturing a product, and one worker can produce 50 units
per day at a rate of $5 per unit, and you need a total of 500 units, the labor cost
would be $5 * (500 / 50) = $50.
In summary, use the first formula when you know the specific number of days for a job, and use the
second formula when the job's scope may change, and you want to calculate costs based on the
total quantity of work.
"Total quantum of work" refers to the overall amount or volume of work that needs to be
completed in a given project. It is a broad measure of the entire scope of work, typically quantified in
terms of units, volume, area, or any relevant metric depending on the nature of the project.
For example:
• In construction, the total quantum of work might be measured in square feet or cubic meters
of built space.
• In manufacturing, it could be the total number of units to be produced.
• In service industries, it might be the total number of tasks or projects to be completed.
In the context of the formula "Labour Cost = Labour rate * (Total quantum of work / Work per labour
manday)," the "Total quantum of work" is the quantity you're using to estimate the overall labor cost.
It's a way of expressing the entire workload, and the formula allows for flexibility in calculating labor
costs based on this overall measure, rather than a fixed number of days or units.
