# Job Costing and True Margins for Medical Device Contract Manufacturers > Source: https://netray.co/resources/medical-device-contract-manufacturer-job-costing-and-margins > Publisher: Netray (netray.co), AI and integration engineering for ERP and manufacturing systems. > Section: Knowledge Base ## Short answer Why medical device contract manufacturers underestimate cost: records labor, inspection, scrap, validation and cleanroom burden, and how to see margin by job. ## Category erp-general ## Content **Intro:** Medical device contract manufacturers often show healthy margins on paper and thin margins in reality, because the costs that make device work different, such as inspection, records review, validation, cleanroom burden and scrap on certified material, are buried in overhead or not charged to jobs at all. To see true margin by job, collect actual hours for inspection and quality release on each work order, charge validation to its own project, apply cleanroom burden by hours used, and track scrap and rework at the material lot level. Then compare actual cost to the quoted cost, by part family, every quarter. **Sections:** #### Cost Buckets That Hide in Overhead **Body:** Standard costing built for commercial machining will spread quality labor across all jobs evenly, which hides the fact that a Class II instrument component might take five times the inspection and records time of a bracket. Pull these costs onto the job. **Bullets:** - Inspection and CMM hours per lot, including first article - DHR assembly, review and release labor - Cleanroom time, gowning, and environmental monitoring burden - Certified material premiums, cut-off waste and lot-segregation losses - Outside processing with its minimum lot charges and shipping - Validation, re-validation and change control engineering #### Standard, Actual and Why Variances Matter **Body:** Standard costing is fine for inventory valuation, but the variance reports are where learning happens. A favorable material variance on titanium bar may mean you backflushed fewer pieces than were scrapped. An unfavorable labor variance on a Swiss-turned part family may be tied to a first-pass yield drop, not slow operators. Review variances by part family and by operation each month, and fix the standards for inspection and release hours from actual data. Costing methods differ in how they treat these hours, and the right choice depends on lot size and product mix. For high-mix low-volume work, actual or job costing is often more informative than a single standard. #### Margin by Customer, Program and Revision **Body:** A customer that sends frequent drawing revisions, tiny lots and heavy audit requests can cost more to serve than the quoted price assumes. Add customer-level cost drivers to your analysis: number of quality agreement audits, complaint investigations, revision changes processed, and hours spent on supplier questionnaires. Compare margin by program over twelve months, not only by invoice. Some programs justify repricing, minimum lot charges or a services fee for change administration. Others are strategic and worth keeping at lower margin, but that should be a decision, not an accident. #### Closing the Loop With Quoting **Body:** The value of better actuals is that the next quote improves. When a job closes, compare quoted and actual hours, yield, material and outside processing per operation, and store the variance with the part family. Estimators then quote inspection and records labor from real averages instead of intuition. In many ERPs this requires disciplined labor reporting by operation and a job-close procedure that someone owns. If your shop reports labor loosely against a single operation, no analytics tool will fix the data, so tighten shop floor data collection first. #### When Detailed Costing Is Not Worth It **Body:** A small shop with a handful of repeat products and stable pricing may not need operation-level actuals for every job. Focus on a sample: choose your five largest programs and three problem jobs, collect precise cost for a quarter, and adjust pricing and standards from what you learn. Detailed tracking costs shop floor time too, so apply it where margin risk is highest. For customers that agree to cost-plus or open-book pricing, accurate actual cost is essential and worth the investment. **Cta:** Netray can run read-only variance analysis over your ERP to show quoted versus actual cost by part family and customer, and flag where inspection and records time is eating margin. **Faq:** #### Why is medical device contract manufacturing margin lower than expected? **Answer:** Because inspection, documentation, validation, cleanroom use and scrap on certified material are often under-quoted or absorbed in overhead. Capturing those costs by job shows which programs and part families actually earn their quoted margin. #### Should a device contract manufacturer use standard or actual costing? **Answer:** Many use standard costs for inventory and reporting and review actual variances to refine standards. For high-mix, low-volume work with significant inspection and records labor, job or actual costing gives more reliable margin visibility. The best choice depends on lot sizes and how cleanly your shop floor data is captured. #### How do I cost validation work in my ERP? **Answer:** Open a dedicated project or job per validation with labor codes for protocol writing, run time, inspection and report review. After several projects you will have actual cost by process type to use in future quotes and to justify separate NRE pricing. ## Related Slugs - gross-margin-analysis-manufacturing - manufacturing-costing-methods-comparison - syteline-costing-variance-investigation - syteline-job-costing-configuration-guide ## Search terms medical device contract manufacturer margins, job costing medical device manufacturing, cost of quality medical device contract manufacturer, standard vs actual costing job shop, quoted vs actual cost variance, cleanroom overhead rate --- Talk to an engineer: https://netray.co/contact?intent=erp_ai | Machine catalog: https://netray.co/agent/catalog.json