In this guide 6 sections
Open one cost record per lot and add five things as work happens: material issued, machine and labour hours, tooling used, outside process charges and scrap. Compare the total with the quoted price before dispatch, so a thin margin is caught while the truck is at the dock and the customer can be called. Margin stops surprising you.
Define the unit of cost
Cost needs a container. For a parts maker the container is the lot, tied to one work order and one customer purchase order line, and everything issued or done for it lands there.
Decide how a lot splits. For ten thousand bushings in four deliveries, either cost the whole run and share it by quantity or open a lot per delivery, then apply one rule every time. No exceptions.
Start from the quote. Its figures for material, hours and outside work become the standard that every actual cost is compared with, line by line, once the lot closes.
Capture material at issue, not at month-end
Record bar or forging issued to the work order by weight at the goods receipt price, and credit offcuts back so the lot pays only for what it consumed.
Allow for cutting loss. A bar cut into blanks leaves a saw kerf and an end stub that is rarely reusable, and the standard must include both. Otherwise every lot looks over budget.
Where heat numbers are tracked, the same issue line carries cost and traceability, so nobody types it twice and a rejected heat can be costed back to every lot.
- Material code, size and issued weight
- Price from the goods receipt
- Returned offcuts and remnants
- Cutting loss allowance
Machine hours, labour and tooling
Record setup and run time separately for each turning, milling and grinding operation, because setup is fixed per lot and small orders carry a heavy share of it.
Charge each machine at its own rate. A five-axis centre and a manual lathe do not cost the same to run, so work the rates out once a year from depreciation, power, maintenance and operator cost. Review them after any big purchase.
Tooling is easy to forget. Inserts, drills, taps and form tools wear piece by piece, so assign a cost per hour or per part from the tool crib issue record.
Outside process, scrap and rework
Plating, heat treatment and vendor grinding arrive on separate invoices, and each one must be linked to the lot it served, including return trips for rework. Unlinked charges flatter the lot.
Scrap needs quantity and stage. A blank scrapped at rough turning costs little, but a shaft scrapped after plating carries the material, turning, grinding and plating charges already spent on it.
Rework hours get their own line. Without it, a lot that needed two passes on the CNC lathe looks exactly as efficient as one that needed a single pass, and the quote never gets corrected.
Review margin before dispatch
Print lot cost beside invoice value. A thin margin still leaves time to raise the price of the next order with the customer, before another lot repeats the same loss.
Keep a short list of lots that missed the quote, with the main reason beside each, because under-quoted setup, scrap after plating and long machine cycles tend to repeat. Then change that assumption.
Try one customer’s order. Cost every lot by hand on a sheet, then list every step a system would have to automate, from the tool crib issue to the vendor invoice match.
- Quoted cost against actual cost
- Setup hours as a share of total
- Scrap stage and quantity
- Outside charges still awaiting invoice
Lot cost sheet
One page, five blocks. The header holds customer, purchase order line, part number, quantity and quoted price, and the blocks below cover material, hours by operation, tooling, outside process and scrap or rework. Each block carries quoted and actual columns plus a variance cell, and a footer shows total cost, invoice value and margin for the lot.
Open a blank worksheet to printQuestions owners ask
Should overheads be included in job costing?
Direct costs first. Add a shop overhead rate per machine hour only once the direct figures are reliable, because mixing the two early hides where each variance comes from.
How do we cost a lot with outside processing still pending?
Estimate it. Take the vendor’s quoted rate, flag the lot as provisional and replace the estimate with the actual charge when the invoice is matched to the work order.
What if operators forget to log time?
Make logging part of the job card handover, with start and stop on the machine terminal or a scanned card at each operation. Check gaps each morning.
How often should machine rates be reviewed?
At least once a year. Also review whenever a machine is added, moved or retooled, because old rates make profitable and loss-making jobs look alike on the cost sheet.