The Cost of One Part
After receiving a quote from a fabrication company, the cost of just one part surprises many people. It’s important to realize the price of a part encompasses four areas:
- Materials – Materials include raw materials such a sheet stock, bar stock, and rod stock.
- Direct Labor – Labor cost assigned to make the products. Axis has two direct labor rates. Novice and journeyman. Each process performed at Axis is assigned a direct labor rate.
- Overhead – machine cost, office wages, sales wages, payroll taxes, employee health care, rent, Axis calculates its overhead rate periodically and make adjustments based on current cost and labor hours. We add a “machine overhead” to our standard overhead factoring in the cost of the equipment used.
- Outsourcing – Cost associated with subcontracting processes not completed in-house.
To begin, the quoting process involves assigning set-up time, and production time to each process needed to complete a part. Set-up includes programming and setting up of a machine to make a part. The set-up time is divided by the order quantity, and added to the production time, material cost, and outsourcing cost to get the part price. As a result, the design and initial set-up is a big portion of the overall cost.
Example Quote
For example, let’s say the set-up charges for a particular part = $105 (see below illustration). These charges come from the time needed to “change over” the machinery to make a different part. Additionally, the actual production of the part costs $8 each. If you build one part, the cost would be $108 per part. Consequently, if you build 100 parts, the total cost would be $905, which drops the cost of each part to $9.05! Importantly, you can see that because set-up fees are static, requesting multiple parts in the same lot decreases the cost of each individual part. One also can deduce more operations add to set-up cost.
Set-up | Production | |
---|---|---|
Laser | $50 | $1.00ea |
Bend | $30 | $2.00ea |
Weld | $25 | $5.00ea |
Total | $105 | $8.00ea |
# of Parts | Set-up | Production | Total Cost | Cost per Part |
---|---|---|---|---|
1 | $105 | $8 | $113 | $113 |
2 | $105 | $8x2 | $121 | $60.50 |
5 | $105 | $8x5 | $145 | $29 |
100 | $105 | $8x100 | $905 | $9.05 |