Key takeaways
- Model the process the factory will actually use: the right machine, cycle time and yield.
- Material is usually the biggest line. Get the gross weight, scrap and grade right first.
- Machine cost per part = machine hour rate ÷ good parts per hour. Cycle time and cavities drive it.
- Keep tooling separate. Amortising it into the price hides it and muddies ownership.
- Use the model to ask better questions, not to demand the model's number.
On this page8 sections
What a should-cost model is, and what it is not
A should-cost model builds the price of a part from the bottom up. It asks: if a capable factory made this part on the right equipment, what would each step cost?
It is not a demand. Factories have real costs your model will miss: an old machine, a small batch, a difficult customer on the next line. The value of the model is that it lets you have a specific conversation. “Your quote is 18% above our estimate; our cycle time assumption is 28 seconds, what is yours?” gets a better answer than “your price is too high”.
The building blocks
Every discrete manufactured part follows the same structure:
| Cost element | How to calculate it | What drives it |
|---|---|---|
| Material | Gross weight × material price × (1 + scrap %) | Part weight, runners and offcuts, grade, yield |
| Machine | Machine hour rate ÷ good parts per hour | Cycle time, cavities or parts per cycle, OEE |
| Direct labour | Labour rate per hour ÷ good parts per hour | Operators per machine, manual steps |
| Setup | (Setup hours × rate) ÷ batch size | Changeover time, batch size |
| Secondary operations | Same logic per step | Machining, finishing, assembly |
| Packaging | Carton and inner pack share per part | Pack specification |
| Overhead and SG&A | % of the above, or a loaded machine rate | Factory size, country |
| Profit | % of total cost | Market, relationship, volume |
| Tooling | Separate, or amortised over an agreed quantity | Tool steel, cavities, complexity |
The free should-cost calculator follows this structure, and the BOM builder rolls up assemblies with bought-in parts.
Get material right first
Material is usually the largest line for moulded, cast and forged parts, and the easiest to get wrong. Three questions:
- What is the gross weight? The net part weight plus runners, sprues, flash, risers or bar-end offcuts. For a casting, gross melt weight can be well above the finished weight.
- What happens to the waste? Runners may be reground, and foundry returns are remelted, but with a loss. Credit only what really goes back into the process.
- Which grade? A quote on a cheaper grade looks attractive until the part fails. Name the grade and ask for mill certificates.
Use a current price for the grade in the supplier’s country, and note the date. Commodity prices move, so agree how material price changes flow into the part price, for example quarterly against a published index.
Machine time: rate ÷ output
Machine cost per part is the machine hour rate divided by good parts per hour. The hour rate covers depreciation, power, maintenance and floor space. Output depends on:
- Cycle time. For moulding and die casting, the time from mould close to mould close. Wall thickness and cooling dominate.
- Parts per cycle. A four-cavity mould makes four parts per cycle.
- OEE (overall equipment effectiveness). Real output after downtime, speed losses and rejects. Few job shops sustain much above 85%.
Small changes here move the price a lot. Halving the cycle time halves the machine cost per part. That is why the cycle time is the first number to agree with the factory.
Worked example: a polypropylene container
An 85 g polypropylene storage container, moulded in a 2-cavity cold-runner mould (15 g runner per shot), 20,000 parts per batch, 100,000 a year. All rates are illustrative assumptions for the example, not market quotes.
Assumptions. PP at $1.40/kg; masterbatch 2% at $4.00/kg; process scrap 2%. 250-tonne press at $20.00 per hour; cycle 28 seconds; OEE 85%. One operator for two presses at $2.60 per hour. Setup 3 hours. Packaging $0.018 per part. Overhead and SG&A 12%; profit 10%.
| Line | Working | Per part |
|---|---|---|
| Material | (85 g + 7.5 g runner) × 1.02 × $1.40/kg | $0.1321 |
| Masterbatch | 92.5 g × 2% × $4.00/kg | $0.0074 |
| Machine | $20.00 ÷ 218.6 good parts/h | $0.0915 |
| Labour | $1.30 ÷ 218.6 | $0.0059 |
| Setup | 3 h × $22.60 ÷ 20,000 | $0.0034 |
| Packaging | Carton and polybag share | $0.0180 |
| Subtotal | $0.2583 | |
| Overhead and SG&A | 12% | $0.0310 |
| Profit | 10% of cost | $0.0289 |
| Should-cost, ex-works | $0.3183 | |
| Tooling, if amortised | $9,000 ÷ 100,000 parts | $0.0900 |
| Should-cost with tooling amortised | $0.4083 |
Good parts per hour: 3,600 ÷ 28 × 2 cavities × 85% = 218.6.
Using it. The supplier quotes $0.46 including tooling. The model is $0.05 lower. The buyer asks two questions: what cycle time and part weight is the quote based on? The answer is a 34-second cycle, because the mould has no conformal cooling. At 34 seconds, the machine line rises to $0.111, which explains about $0.02 of the gap. The rest is negotiated, and the buyer agrees to pay for tooling up front, which removes $0.09 from the price and puts the mould in the buyer’s name.
The same method for other processes
The structure stays the same across processes; only the drivers change.
| Process | Material driver | Time driver | Watch for |
|---|---|---|---|
| Pressure die casting | Shot weight, runner and overflow returns, melt loss | Cycle time, cavities | Trimming, machining, impregnation, finishing |
| Investment casting | Pour weight including gating | Parts per tree, shell and pour cycle | Heat treatment, fettling, machining |
| CNC machining | Bar or blank weight, including chips and offcuts | Cycle time per operation, setups | Tool wear, inspection time |
| Sheet metal | Blank size and nesting yield | Punch or laser time, bends | Welding, finishing, hardware insertion |
| Cut-and-sew | Fabric consumption per garment, marker efficiency | Standard allowed minutes (SAM) × line cost per minute | Trims, washing, printing |
Where do the inputs come from? Weights from the CAD model or by weighing a sample, cycle times from similar parts or a mould-flow study, machine and labour rates from supplier cost breakdowns you have collected, and material prices from local distributors. Record the source and date of every input: the model is only as current as its oldest number.
Use the model to negotiate well
- Share the structure, not always the numbers. Ask the factory for a cost breakdown in the same format as your model, so you compare line by line.
- Separate one-off from recurring cost. Tooling, fixtures and first-article inspection are one-off. Keep them out of the unit price where you can.
- Look at MOQ and batch size. Setup cost falls with batch size. The MOQ vs price calculator shows where larger orders stop paying off.
- Compare several quotes on the same basis. The quote comparison tool normalises Incoterms, tooling and payment terms.
- Include design questions. A thinner wall, a different grade or one fewer machining operation often saves more than any negotiation. The teardown cost calculator helps you test those ideas.
From should-cost to landed cost
Ex-works should-cost is only the factory gate. To decide between suppliers or countries, add freight, insurance, duty, fees and inspection to get the landed cost per unit. The landed cost guide walks through that step, and the make or buy calculator compares buying with making in-house.
Free tools for this guide
In the India Sourcing Atlas
Plastics and rubber mouldingInjection-moulded plastic partsPolypropylene and polyethylene