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Scrap and Yield Adjusted Product Cost Calculator

A BOM shows the net material in one finished unit, but your cost includes the offcuts and rejected units behind it. This calculator rolls both into the true cost per good unit and the price that earns your margin.

Your numbers

Net material cost per unit (BOM)

Material scrap or offcut allowance

6 %

Share of purchased material lost before it reaches the part, as a percent of gross material.

Labor minutes per unit

min

Labor rate

$/hr

Overhead applied to labor

First pass yield

96 %

Units finished good out of units started. Rejected units are lost cost.

Target gross margin

35 %

Margin on selling price, not markup on cost.

Your results

Cost per good unit

$27

Price at target margin

$42

Gross material per unit after scrap

$15

Labor per unit

Overhead per unit

Cost per unit started

$26

Equivalent markup on cost

53.8%

Scrap here is material lost before the part exists. Yield covers finished units rejected later. Do not enter the same loss in both fields.

Save results:

Cost per good unit and price vs scrap rate

Sweeps Material scrap or offcut allowance from 0 to 30, holding your other inputs fixed.

Audit my standard costs

Optional: compare ERP standard costs with scrap and yield history.

Optional. The tool and every export work without this. No spam.

How to use it

Enter material from the BOM at net quantity, then the scrap allowance that your ERP scrap factor should carry. Add labor minutes, the loaded labor rate and an overhead absorption percentage. Enter the first pass yield from your inspection records. Finally set the gross margin you need and read the price. The sweep chart shows how quickly scrap erodes profit.

Formulas

Gross material equals net material divided by one minus the scrap fraction. Cost per unit started adds labor and overhead. Cost per good unit divides by yield, because each rejected unit consumed the full cost. Price equals cost per good unit divided by one minus the margin, which is different from adding a markup percent.

10 percent scrap needs 11.1 percent more material, not 10
A 96 percent yield adds about 4.2 percent to cost
Margin of 35 percent equals markup of 53.8 percent
Overhead is applied to labor here, change to suit your costing

Reading the result

Compare cost per good unit with your ERP standard cost. A large gap usually means the scrap factor or yield in the item master is stale. The price output shows what you must charge, so quotes below it deliver less than your target margin even before freight or commission.

Common mistakes

Applying scrap as a multiplier of material by one plus the percent understates the effect. Entering the same loss in scrap and yield double counts. Using markup percent as margin makes prices too low, since 35 percent markup is only a 26 percent margin.

Frequently Asked Questions

What is the difference between scrap factor and yield?

Scrap factor describes material lost during making, like offcuts or setup waste, and inflates the quantity you must buy. Yield describes finished units that fail inspection, which wastes the full cost of the unit. Use each for its own loss.

Why divide by one minus scrap instead of multiplying?

If 10 percent of purchased material is lost, you only get 90 percent usable. To get one unit of net material you need 1 divided by 0.9, which is 11.1 percent more. Multiplying by 1.10 would understate it.

How do I convert markup to margin?

Margin equals markup divided by one plus markup. A 50 percent markup gives 33.3 percent margin. The calculator shows the equivalent markup so you can check what your price list uses.

Should overhead apply to labor or machine hours?

Either can be valid. Machine intensive shops often apply overhead per machine hour. To model that, convert machine hours cost into the labor minutes and rate fields.

If you want scrap and yield pulled from your ERP history to update standard costs, Netray can help set that up.

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