Cost

Cost of MRP and Scheduling: What Drives Cost Per Unit and How to Quote It

How to translate MRP and scheduling decisions into cost per unit, build a defensible quote, and spot the hidden charges that wreck estimates.

Planning decisions carry a price tag most estimates ignore. The fully loaded cost of a produced unit stacks material, direct labor, machine time, scrap, and applied overhead. On a typical machined part, material runs 45 to 55 percent, labor 15 to 20 percent, machine time 10 to 15 percent, and overhead absorbs the rest. Scheduling choices move these shares. A larger lot spreads a 250 dollar setup over more pieces but raises carrying cost, so the real question in any quote is which lot size lands the lowest total cost per unit at your actual volume.

Carrying cost is the charge most people underquote. Annual holding cost runs 18 to 28 percent of unit value once you add capital, storage, insurance, obsolescence, and shrink. Hold 1,131 units worth 40 dollars each at 22 percent and that inventory costs about 9,950 dollars a year to carry, or roughly 0.44 dollars per unit sold if you turn it eight times. When you feed order sizes into an Economic Order Quantity calculator, price the holding rate honestly. Using 10 percent when your true cost of capital and obsolescence is 24 percent understates cost per unit by half.

Setup and changeover cost belongs in every per unit quote. If a changeover takes 90 minutes at a 120 dollar per hour loaded machine rate, that is 180 dollars amortized across the run. Spread over 500 pieces it adds 0.36 dollars each. Over 100 pieces it adds 1.80 dollars. This is why short runs quoted at long run rates lose money. Pull the planned lot size from your MRP Material Requirements output and divide setup by that quantity so the changeover charge in the quote matches what the schedule will actually produce.

Scrap and rework quietly inflate cost per unit. If yield is 94 percent, you must start 1,064 units to ship 1,000, so every good unit absorbs 6.4 percent more material and labor. At a 30 dollar loaded input cost, that yield loss adds about 1.92 dollars per shipped unit before any rework labor. Quote against expected yield, not nameplate. Padding the start quantity in your Master Production Schedule Load also protects the promise date, since a scrap event on a tight schedule usually triggers expedite premiums that dwarf the material loss.

Expediting is the cost estimates forget until it hits. Premium freight, overtime at 1.5 times rate, and split shipments commonly add 8 to 15 percent to an order that misses its window. A single air freight recovery can erase the margin on a whole month of that part. The defense is planning accuracy: a Manufacturing Reorder Point and Manufacturing Lead Time check that reflects real supplier variability keeps you off expedite. Build a modest expedite contingency, often 2 to 4 percent, into quotes for parts with volatile demand or single source supply.

Overhead absorption is where quotes drift from reality. If you apply overhead as a flat percentage of labor but your automated cells use little labor and heavy machine time, low labor parts get undercosted and hand assembly gets overcosted. Move to a machine hour rate for equipment heavy work: total cell overhead divided by available machine hours from your Production Schedule Capacity calculator. A cell with 220,000 dollars of annual overhead over 3,400 available hours carries 65 dollars per machine hour, applied by the run time the part actually consumes.

A defensible quote sums material at yield adjusted quantity, direct labor at loaded rate, machine time at the machine hour rate, amortized setup, carrying cost for the lot, and an expedite contingency, then adds target margin. For a 500 piece order that might read 15.00 material, 3.20 labor, 4.90 machine, 0.36 setup, 0.28 carrying, and 0.45 contingency, totaling 24.19 cost, quoted at 32 percent margin near 35.60 each. Every line ties to a planning number, so you can defend it line by line when a buyer pushes back.

The estimates that go wrong share three habits: they cost at nameplate yield instead of actual, they apply long run setup and overhead rates to short runs, and they leave carrying and expedite cost off the sheet entirely. Rerun a sample of last quarter's shipped orders through your real lot sizes, yields, and carrying rate, then compare quoted margin to realized margin. A gap wider than 5 points almost always traces back to one of those three, and fixing the inputs is faster than repricing every line.

Published 2026-07-01.