Cellular Manufacturing System is an efficient manufacturing system which can be directly integrated with the production functions. However the conversion from an existing job shop system to a cellular manufacturing system is a huge job. In this study, modelling and economic analysis of this conversion are performed in order to justify the cellular manufacturing system. A selected real life manufacturing system operating under job shop system conditions is designed as ten cells. This new system and the existing system are modelled and simulated by SIMAN. Then an economic analysis is performed using the simulation results. Inventory carrying cost, and machine and materials handling equipment duplication costs are primarily considered in this economic analysis.