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Should Cost Model Worksheet for Machined Parts

A should cost model builds a part's price from the ground up, so you can negotiate from facts instead of a quote. This worksheet breaks a machined part into material, machine time, setup, finishing, inspection and tooling, adds overhead and profit, and exports to Excel.

Download:

Cost element	Group	Cost driver	Quantity per piece	Rate per unit	Allowance %	Cost per piece
						$10
						$33
						$3
						$5
						$5
						$5
						$1

Should cost per piece (before SG&A and profit)

$62

SG&A at 10%

Profit at 12%

Should cost price per piece

$76

Cost plus SG&A and profit. Compare this to the supplier quote at the same quantity.

Divide setup hours by lot size before entering the quantity, for example 2 setup hours on a 50 piece lot is 0.04 hours per piece. Replace the SG&A and profit percentages in the summary logic with your own assumptions by editing the rates in the rows or applying the markup in Excel after export.

Pull should cost inputs from your ERP

Optional: a short review of how routings, rates and material prices could feed a should cost view.

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

How to use the should cost worksheet

List each cost element in a row. For material, enter kilograms of stock needed per piece, including the bar or plate you cut it from, and the price per kilogram. For machining, enter the cycle time in hours and the shop rate. For setup, divide total setup hours by the lot size. Add finishing, inspection and tooling. Use the allowance column for scrap and yield loss. The worksheet multiplies quantity by rate and by one plus the allowance, then totals the rows. Edit, add or delete rows to match your part, and export the result to Excel or PDF to share with the team.

The method behind a should cost

Should cost is a bottom-up estimate. You start from the raw material weight and market price, add the process time on each machine at a realistic rate, add outside processes, then layer on overhead, SG&A and a fair margin. The logic is the same used in cost engineering teams. The aim is not to prove a supplier wrong to the cent. The aim is to find which cost lines are out of proportion so the negotiation focuses on them. Material and cycle time are usually the largest drivers for milled parts, and they are the easiest to verify.

Material: stock weight, not finished weight
Machine rates: use a market rate for the machine class
Setup: amortize over the real lot size
Margin: typical job shop margins are in the low double digits

Reading the result

Compare the should cost price to the supplier quote at the same quantity. A gap of a few percent is normal noise. A gap of 20 percent or more means either you missed a cost, such as a secondary operation, or the supplier has padding in one line. Ask for a breakdown by group and compare group by group. If the machining line is far above yours, question the cycle time. If material is high, question stock size and scrap. Keep the model, because the same part at a different quantity only needs the setup and tooling lines updated.

Common mistakes

Using finished part weight for material instead of stock weight understates cost, often by half for plate and bar. Using a machine rate that excludes labor, or one that includes full overhead twice, distorts the total. Ignoring setup on small lots is another common error. Finally, do not treat the model as exact. It is a negotiation tool, and its value comes from showing where the supplier's number is unusual, not from matching it perfectly.

Frequently Asked Questions

What is a should cost model?

A should cost model is a bottom-up estimate of what a part ought to cost, built from material, labor, machine time, overhead and margin. Buyers use it to challenge quotes, find cost drivers, and negotiate with facts instead of relying only on competing bids.

How accurate does a should cost need to be?

It does not need to be exact. Being within roughly 10 percent is useful. The goal is to see which lines in a quote are out of proportion, not to match the supplier cent for cent. Refine the biggest cost lines first.

What machine rate should I use?

Use a market rate for the machine class, for example a three-axis mill versus a five-axis center, and confirm whether it includes labor and overhead. If you have no data, ask two or three shops for their hourly rates and use the middle value.

How do I handle setup cost?

Estimate total setup hours for a run, multiply by the setup rate, and divide by the lot size to get setup per piece. Because setup is fixed per run, it falls as quantity rises, which is why quantity breaks matter in quotes.

If your part costs, routings and standard rates live in your ERP, Netray can help pull them into a should cost view so the model starts from your own data.

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