After a trial, how should we calculate unit cost?
When discussing a new process, it is tempting to multiply theoretical material usage by unit price and call it the cost. A trial example in my training highlights what sits between theory and production: residue, setup, recovery and rejected units.
Agree on the records before the trial
Section titled “Agree on the records before the trial”| Item | Questions I would ask |
|---|---|
| Input | How much material was actually issued? Does this include setup? |
| Recovery | How much can genuinely be reused, and under what conditions? |
| Residue and losses | Are residue, cleaning, changeover and rejects recorded separately? |
| Output | What are total output and accepted output, respectively? |
| Conditions | Which process version, equipment, quality standard and units were used? |
Leftover material is not automatically reusable material. The responsible team must confirm whether it can be recovered.
A starting point for calculation
Section titled “A starting point for calculation”Material cost per accepted unit = net material cost attributable to the trial ÷ accepted units
Net material cost needs an agreed basis for recoverable value and losses. The denominator is accepted output, not everything produced. If no units are accepted, the trial cannot produce a meaningful unit cost using this formula.
This covers material only. Processing, labour, energy, depreciation and other costs require separate assessment on the applicable basis.
Why I ask for the underlying records
Section titled “Why I ask for the underlying records”A low number is not ready for a formal quotation if it does not explain setup consumption, usable recovery and the calculation of accepted yield.
Sales does not replace engineering’s cost assessment. It does need to understand the boundaries of the number to explain the conditions behind a price.
Before moving towards production
Section titled “Before moving towards production”Label the basis clearly: theoretical estimate, trial result or stable production data. Trial observations can identify improvements, but they do not establish that every future batch will achieve the same unit cost.
Adapted from sales team training. Project details are generalised; examples do not report actual project outcomes.