GlossaryKind of term: Cost and economicsCost price
What is cost price?
The cost price is what it costs to make one part at a given quantity, before profit; worked out in advance, it is an estimate.
It is made up of material, machine and labour hours at their rates, subcontracted operations, a share of one-off costs such as setup and programming, and, for a full cost price, a share of overheads. Which costs you include is a choice: a full cost price, also called absorption cost, carries overheads too; a variable cost price holds only what moves with the order. Worked out beforehand, the cost price is an estimate; the actual cost follows from the post-calculation.
What does the cost price depend on?
Cost per part depends on quantity, because one-off costs spread over more or fewer parts: the same 42CrMo4 shaft, for example, costs more per part at 5 off than at 25. Route and machine choice, the rates and how they are built up, material price and purchase quantity, and tolerances and roughness requirements that call for inspection time, extra setups or finishing passes all play a part. Overheads often sit in the machine hour rate already, so the number of productive hours behind that rate also moves the cost price.
How does the cost price work in practice?
In the long run your prices have to cover full cost on average. When the shop is short of work, a price above variable cost but below full cost can still make a contribution to fixed costs; that is a commercial decision, not an arithmetic rule. Knowing the cost line by line shows which requirement or choice drives it, such as an extra setup for a flatness requirement or a subcontracted finish. Check whether profit or risk already sits in your rates before adding margin, or you count it twice.
What is the cost price often confused with?
Cost price is not selling price: the selling price goes on the quote and includes margin, sometimes a commercial choice too. It is not the material price either: material is one line and, on machined parts, often not the largest. And the cost price in the estimate is not the actual cost: that only follows from the post-calculation.
How do you see the cost price in Blake?
In Blake the cost estimate sits per piece and per batch at every quantity in the break, built from material, machining, finishing, setup and programming at your own hourly rate per machine. More on estimating.
Frequently asked questions
Is margin part of the cost price?
No, cost price excludes profit. Do check your rates, though: if the machine hour rate already carries a profit mark-up, your cost price carries it too, and adding margin counts it twice.
Why does cost per part change with quantity?
Because setup, programming and other one-off costs are spread over the quantity. Material pricing, subcontractors' minimum charges and even the route can change with quantity as well.
What is the difference between full and variable cost price?
The full cost price also carries a share of overheads at normal utilisation; the variable cost price only what moves with the order. The gap is the fixed-cost share per part: a price in between makes a contribution but does not cover full cost.