Material Cost Calculation

Material cost calculation potentially involves a lot of information.  In my previous blog I mentioned many of the data points involved in the material cost calculation including Parts Size, Blank Size, Stock Size, Safety Stock Size, and others.  One of the reasons you need the part size is raw material is usually a commodity.  The commodity is usually priced in some type of weight which needs to be calculated.

Lets discuss flat parts that are cut out of wood, metal, plastic, etc.  The first thing you need to get is the proper part size.  The part size is the minimum amount of material required to make the part.  When estimating you can take the part size as the smallest rectangle that will be large enough to make the part.  The reason that this is usually appropriate is that the some of the material would be scrapped and have to be charged to the job.  Now in the days of nesting software, its possible to nest parts together to save considerable amount of material costs.  In this situation it may be wise to actually use actual part size versus a more general rectangular part size for the material cost calculation.  If you are going to use exact calculation of the part size you will want to set a scrap percentage factor because nesting software still has a scrap factor.

When estimating the part size a DXF file that is analyzed could give you exact size pretty easy.  If your customer gives you a proper model you can extract this information directly, but if not, you may have to draw the part in a cad package to arrive at the desired size.   There are those who will actually nest the parts during estimation to arrive at the material costs but this can be misleading.  The reason this may be misleading for the material costs is there may be a different set of parts that actually get nested during production.  One way is to run some nesting simulations and see what the average scrap factor is and you will get most material costs estimated accurately.

This will be continued in my next blog.

MIE Solutions provides software resources to help you manage your direct and indirect labor throughout the product lifecycle from quoting and estimating, job costing to invoicing.

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