Why charge scrap at full variable cost instead of lost margin?

Because a scrapped piece uses its material and outside processing and ships nothing. You start extra pieces to fill the order; scrap cost is those starts times variable cost, and their run time lowers contribution per hour.

Should direct labor go in variable cost?

Only if you pay it per piece or send people home when there is no work. If operators are paid for the shift anyway, leave labor out; contribution per hour must then cover wages and overhead.

Is an order with positive contribution worth taking?

Yes, if the machine would otherwise sit idle, because it covers part of your fixed cost. If the machine is booked, take it only when its contribution per hour beats the order it pushes out.

How do I get shippable yield for a new part?

Count it: good pieces shipped divided by pieces started, from trial runs or your closest part family. A reworked piece that ships counts as good; add average bottleneck rework time per piece to run time.

Contract Manufacturing, Job Shop Quoting & Make-to-Order calculator

Order Profitability Calculator

Find what an order contributes once scrapped starts are paid for, and what it earns per bottleneck machine hour. You need quantity, price, variable cost, yield, setup hours and run time.

What this calculator does

Contribution an order adds after paying for scrap, and per machine hour to rank it against other work.

Formula used

Units started = order quantity ÷ (shippable yield ÷ 100)
Order contribution = order quantity × price per unit − units started × variable cost per unit
Machine hours = setup hours + units started × run time per unit ÷ 60 min per hr
Contribution per machine hour = contribution ÷ machine hours; contribution margin = contribution ÷ order revenue × 100
Scrap cost = (units started − order quantity) × variable cost; break-even price = variable cost ÷ (yield ÷ 100)

Inputs explained

Order Quantity: Good parts on the purchase order or release.
Price per Unit: Quoted piece price, net of discounts.
Variable Cost per Unit Started: Material, outside processing and any other cost paid per piece.
Shippable Yield: Good parts shipped ÷ parts started, from recent run counts.
Setup Hours: Setup and first-article time on the bottleneck machine.
Run Time per Unit: Cycle time per piece on that same bottleneck machine.

How to use the result

Best suited to accepting or declining a low-price order, choosing which order gets the bottleneck machine, pricing a part with poor yield.
Contribution must still cover overhead and shift labor; a positive order can lose money at full cost. Counts one bottleneck machine only; other operations are assumed to have spare capacity.

Current U.S. benchmarks

The U.S. prime lending rate is 7.00% (Federal Reserve via FRED, 2026-10-02). Payback and financing math should start from today's rate, not a remembered one.

Common questions

Why charge scrap at full variable cost instead of lost margin? Because a scrapped piece uses its material and outside processing and ships nothing. You start extra pieces to fill the order; scrap cost is those starts times variable cost, and their run time lowers contribution per hour.
Should direct labor go in variable cost? Only if you pay it per piece or send people home when there is no work. If operators are paid for the shift anyway, leave labor out; contribution per hour must then cover wages and overhead.
Is an order with positive contribution worth taking? Yes, if the machine would otherwise sit idle, because it covers part of your fixed cost. If the machine is booked, take it only when its contribution per hour beats the order it pushes out.
How do I get shippable yield for a new part? Count it: good pieces shipped divided by pieces started, from trial runs or your closest part family. A reworked piece that ships counts as good; add average bottleneck rework time per piece to run time.

Last reviewed 2026-10-01.