Parts costing

Parts costing

Parts costing is fairly straightforward and is simply a question of determining the cost of all of the physical parts and components used in a manufactured or engineered product. Parts costing works from the `bottom up' - in other words, the cost of each individual component (i.e., the per unit cost) is determined on the basis of the given standard supply multiple. For example, if plastic case parts are purchased in quantities of 1000 then the per unit cost is simply the total cost of purchasing 1000 items from the supplier divided by the supply multiple (i.e., 1000). You should note that the cost of an individual item purchased from a supplier is usually very much greater than the per unit cost when the item is purchased in quantity. As an example of parts costing, consider the following example.

It is often useful to group together individual component parts under groupings of similar items. The reason for this is that such groupings tend to be subject to the same fluctuation in cost. We can thus quickly determine the effect of market fluctuations by examining the effect of changes on particular groups of parts.