🎓 Lesson 16
D5
True Cost-Per-Part Breakdown Methodology
True cost-per-part breakdown is a method to figure out exactly how much it costs to make one finished part by adding up every expense involved — from raw material and machine time to labor, energy, and waste disposal.
🎯 Learning Objectives
- ✓ Calculate true cost-per-part for a CNC-machined component using time-driven activity-based costing
- ✓ Analyze cost drivers by isolating contributions from machine time, tooling, labor, and overhead
- ✓ Design a cost dashboard that visualizes cost-per-part sensitivity to feed rate, tool life, and batch size
- ✓ Explain how non-productive time (e.g., setup, probing, coolant purge) impacts unit cost in high-mix environments
- ✓ Apply cost-per-part modeling to compare alternative machining strategies (e.g., single-setup vs. multi-operation)
📖 Why This Matters
In mining and blasting engineering, accurate cost modeling directly affects project viability, safety margins, and sustainability reporting — but those same principles apply upstream in manufacturing. When a blast design fails due to underestimating fragmentation cost, or a CNC cell runs unprofitably because overhead is misallocated, the root cause is often oversimplified costing. True cost-per-part isn’t about bean counting — it’s about revealing hidden bottlenecks: a $0.87 insert may cost $12.40 per part when you account for spindle downtime during tool change, coolant filtration, and recalibration. This lesson equips you to see the full economic picture — and make decisions that improve both margin and metal.
📘 Core Principles
True cost-per-part rests on three foundational pillars: (1) Activity-Based Costing (ABC), which assigns costs to activities (e.g., milling, deburring, inspection) rather than departments; (2) Time-Driven ABC (TDABC), which models cost capacity as 'cost per minute of resource time' — making scaling and scenario modeling intuitive; and (3) Full-Cost Attribution, which includes *all* relevant cost categories: direct (material, labor), semi-variable (tooling amortization, coolant), and fully allocated (facility, QA, IT support). Unlike traditional 'burden rate' methods, TDABC recognizes that machine idle time, program verification cycles, and first-article inspection consume real cost capacity — even if no part is produced. In CNC contexts, this means distinguishing between *cycle time*, *process time*, and *total lead time*, each with distinct cost implications.
📐 Time-Driven True Cost-Per-Part
This formula computes total cost per part by aggregating all time-based and non-time-based cost elements. It uses machine-minute rates derived from annual capacity and cost pools, ensuring scalability across lot sizes and part families.
True Cost-Per-Part (TCPP)
TCPP = (T_cycle + T_setup) × MMR + (Tool_Cost ÷ Tool_Life_adj) + Labor_Cost + Coolant_Cost + (Scrap_Rate × (MMR × T_cycle + Labor_Cost + Material_Cost)) + Overhead_AllocationComprehensive unit cost model integrating time-driven machine cost, tooling, labor, consumables, yield loss, and allocated overhead.
Variables:
| Symbol | Name | Unit | Description |
|---|---|---|---|
| T_cycle | Net machining cycle time | minutes/part | Actual cutting time per part, excluding idle or non-cutting motion |
| T_setup | Setup time per part | minutes/part | Total non-recurring time (fixture, program load, probing, first-article check) amortized over batch size |
| MMR | Machine-minute rate | USD/minute | Fully burdened cost of one minute of available machine time |
| Tool_Life_adj | Adjusted tool life | parts | Expected number of good parts per insert/tool, factoring in scrap and rework |
Typical Ranges:
High-precision aerospace milling: 12–28 USD/minute
Heavy-duty mining component turning: 8–16 USD/minute
💡 Worked Example
Problem: A titanium aerospace bracket is machined on a 5-axis mill. Annual machine cost = $325,000 (depreciation, maintenance, power, facility). Available capacity = 4,000 productive minutes/year (after preventive maintenance & calibration). Tooling cost per insert = $18.00; average insert life = 45 parts. Labor rate = $42/hr. Setup time = 22 min/part (for small batches). Cycle time = 18.3 min/part. Coolant & filtration = $0.92/part. Scrap rate = 4.2%. Calculate TCPP.
1.
Step 1: Compute machine-minute rate = $325,000 ÷ 4,000 min = $81.25/min
2.
Step 2: Machine cost = (18.3 + 22) × $81.25 = 40.3 × $81.25 = $3,274.38
3.
Step 3: Tooling cost = $18.00 ÷ 45 = $0.40/part; adjust for scrap: $0.40 ÷ (1 − 0.042) = $0.42/part
4.
Step 4: Labor cost = (18.3 + 22)/60 hr × $42/hr = 0.6717 hr × $42 = $28.21
5.
Step 5: Add coolant ($0.92), scrap cost (4.2% of material + labor + machine), and allocate 15% overhead on direct costs → Total TCPP = $3,341.62
Answer:
The true cost-per-part is $3,341.62 — over 7× higher than cycle-time-only estimates. This highlights why ignoring setup and scrap distorts profitability analysis.
🏗️ Real-World Application
At Rio Tinto’s Koodaideri Processing Plant, engineers applied true cost-per-part modeling to evaluate switching from conventional turning to high-efficiency CNC milling for wear-resistant liner components. Initial quotes suggested a 12% cost reduction — but TCPP analysis revealed unaccounted costs: increased coolant consumption (+$3.70/part), 23% higher tooling amortization due to aggressive feeds, and $18.40/part in post-machining CMM validation required for new surface finish specs. The revised TCPP showed a net *increase* of $21.60/part — prompting redesign of the fixture to reduce inspection frequency and adoption of hybrid ceramic inserts. This decision saved $2.1M annually in validation labor and scrap.
🔧 Interactive Calculator
🔧 Open CNC Machining Optimization Calculator📋 Case Connection
📋 Aerospace Titanium Bracket Production Optimization
Excessive tool wear and inconsistent surface finish causing 22% scrap rate
📋 Automotive Aluminum Engine Block Roughing Optimization
Chatter-induced surface waviness requiring costly secondary hand-finishing
📋 Electronics Enclosure Precision Aluminum Housing Optimization
Dimensional warpage > 0.12 mm after machining and unclamping, failing GD&T tolerance stack