Why is one part so expensive?

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:

1. Materials – Materials include raw materials such a sheet stock, bar stock, and rod stock.
2. 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.
3. 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.
4. 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.