Add seven cost groups per piece: raw materials (the gross quantity used, including scrap, × today's price), labour (operator hours × hourly rate), machine time (machine hours × machine rate), overhead (shared out per machine or labour hour), packaging, freight and other job-specific costs. The total is the unit cost, the floor every selling price on the quotation has to clear.
What goes into a product's unit cost?
Unit cost is everything it costs your factory to make one piece and get it to the customer. For a quotation, it is the number every selling price has to clear. If it is wrong, the margin on the quotation is wrong too, however carefully the price was chosen.
A practical way to build it is to add seven cost groups per unit:
- Raw materials: every material in the bill of materials (BOM), quantity per piece × price.
- Labour: operator time per piece × hourly labour rate.
- Machine time: machine hours per piece × machine hourly rate.
- Overhead: factory costs that are not tied to one product, shared out per piece.
- Packaging: bags, cartons, pallets and labels, per piece.
- Freight: delivery cost per piece, if your price includes delivery.
- Other: anything specific to the job, such as printing, testing or tooling amortisation.
The groups matter less than the habit: every cost goes somewhere, and every amount is per piece.
How do you work out raw material cost per piece?
Multiply the quantity used per piece by the current price of the material. The quantity should be the gross amount you consume, not the net weight of the finished part. In plastic moulding, for example, that means adding runners that are not reground and an allowance for rejects.
Illustration: a part weighs 0.90 kg, and the factory loses about 5% to start-up scrap and rejects. The costing should use 0.90 × 1.05 ≈ 0.95 kg per piece, not 0.90 kg. On a resin at RM 4.20 per kg (Malaysian ringgit), that difference is about RM 0.21 on every piece.
Use today's price, not the price in last month's file. A raw material price that has moved since the costing was done is the most common reason a quotation that looked profitable is not. Our guide on what to do with open quotations when material prices rise covers what to do when that happens.
How do you cost labour and machine time per piece?
Both start from time. For machine time, take the cycle time and divide by the number of pieces per cycle: a 79-second cycle making one piece is 79 ÷ 3,600 ≈ 0.022 machine hours per piece. Multiply by a machine hourly rate that covers the machine's running cost.
For labour, use the operator time each piece actually needs, including trimming, checking and packing, then multiply by a fully loaded hourly rate (wages plus statutory contributions). If one operator looks after two machines, each machine carries half of that operator's time.
How should overhead be shared across products?
Overhead is rent, electricity not metered per machine, supervision, maintenance, quality control and similar costs. Pick one basis to share it and use it consistently:
- Per machine hour: total monthly overhead ÷ machine hours run in the month. Good when machines drive most of the cost.
- Per labour hour: total overhead ÷ labour hours. Good for assembly-heavy work.
- As a percentage of material or conversion cost: simple, but less accurate when products use very different amounts of machine time.
Review the rate when volumes or fixed costs change. A rate set in a busy year under-costs products in a quiet one.
What does a full unit cost look like?
A worked example for a 20 litre paint pail moulded in polypropylene (PP). All figures are illustrative sample figures, not real prices or rates.
| Cost group | How it is worked out | RM per piece |
|---|---|---|
| Raw materials | PP resin 0.95 kg × RM 4.20, black masterbatch 0.02 kg × RM 6.80, calcium carbonate filler 0.10 kg × RM 1.20 | 4.25 |
| Labour | 0.042 operator hours × RM 10 per hour | 0.42 |
| Machine time | 0.022 hours on a 120-tonne moulding machine × RM 40 per hour | 0.88 |
| Overhead | Factory overhead absorbed at about RM 16.40 per machine hour × 0.022 hours | 0.36 |
| Packaging | Poly bag plus a share of the carton | 0.30 |
| Freight | Delivery cost per trip ÷ pieces per trip | 0.18 |
| Other | Label printing | 0.06 |
| Unit cost | Sum of the seven groups | 6.45 |
Raw materials are about two-thirds of this unit cost, which is why a change in the resin price moves the whole quotation. Freight and packaging look small, but on 20,000 pieces RM 0.48 per piece is RM 9,600.
What mistakes make unit costs wrong?
- Copying an old costing file and forgetting that its material prices are months old.
- Using net weight instead of the quantity actually consumed, including scrap.
- Leaving out packaging or freight because "it is small", when the price includes delivery.
- One overhead rate for everything, regardless of how much machine time a product uses.
- No record of the assumptions, so nobody can check the costing when the customer asks for a revision.
How does Avantix Costing calculate unit cost?
Avantix Costing is a costing and quotation approval system for manufacturers, made by Avantix Innovation Sdn. Bhd. in Penang. Its costing sheet uses the same seven groups: raw materials, labour, machine time, overhead, packaging, freight and other or custom costs.
- Raw materials are picked from one central price list with code, category and unit, and multiplied by the quantity used per piece. Totals update as you type.
- If a material's master price has changed since the costing was done, the row shows a hint, and one click adopts the new price.
- The unit cost then feeds the quotation's volume tiers, each with its own margin. See our guide to minimum margin and volume-tier pricing.
- Material prices are maintained by purchasing. If you also want purchase requests approved before anything is bought, the Avantix Procurement Portal is the purchasing companion to Avantix Costing.
See all features, how the flow works or the Avantix Costing product page on the Avantix Innovation website.