How do you calculate tooling amortization per part?

Subtract the expected residual value from the installed tool cost and divide by the lifetime good parts. A $60,000 die worth $5,000 at the end, over 200,000 good parts, amortizes at ($60,000 - $5,000) / 200,000 = $0.275 per part.

What happens to the price once tooling amortization is complete?

The amortization line comes out of the unit cost, so the price can drop by that amount if the contract says so. On the example that is $0.275 a part. Many supply agreements state this explicitly; check yours, because without it the supplier keeps the margin.

Should tooling be amortized or paid up front?

Paying up front keeps the part price clean and the tool usually belongs to the customer. Amortizing spreads the cost into the price, which suits the buyer's cash flow but leaves the supplier exposed if volumes fall short. Many shops amortize only when there is a committed minimum quantity.

Do I amortize over shots or over good parts?

Over good parts. A 4-cavity mold making 50,000 shots yields up to 200,000 parts before scrap; dividing by shots would charge each part four times its share, and dividing by gross parts would ignore the scrap the customer does not pay for.

How do I check the tooling allowance in a quote?

Compare the allowance per part with the amortization per part. A $0.35 allowance against $0.275 of amortization leaves $0.075 a part of headroom; a negative headroom means the price does not recover the tool at the planned volume.

Cost and Quoting

Tooling Amortization Formula

Tooling amortization spreads the cost of a mold, die or fixture over the good parts it will make, so each part's price carries its share of the tool. Use it when quoting a part with dedicated tooling or checking whether a part's tooling allowance covers the investment.

Formula

Amortization per Part = (Tool Investment - Residual Value) / Lifetime Good Parts

Variables

Tool Investment: Installed cost of the mold, die or fixture, including tryout and qualification
Residual Value: What the tool is expected to be worth at the end of its life (resale or scrap)
Lifetime Good Parts: Good parts the tool is expected to make over the program, not shots or strokes

Understanding the Tooling Amortization Formula

Amortizing tooling turns a one-time investment into a per-part cost so that the part price recovers it. The recoverable amount is what the tool costs less what it will still be worth at the end; spread over the good parts it will make, that is the tooling cost each part has to carry. In the example, $55,000 over 200,000 parts is $0.275 a part.

The volume in the denominator is the weak point. Use the good parts the program will realistically buy, not the tool's rated life: a die rated for a million hits on a 200,000-part program still has to be paid for by 200,000 parts. If volumes are uncertain, quote the tooling separately or agree a minimum quantity, because every shortfall leaves part of the tool unrecovered.

Once the tool is paid off, the amortization line disappears from the unit cost, which is why buyers ask when it ends and suppliers track the remaining balance each period. Keep the per-period allocation and the investment still to recover side by side: $5,500 this period leaves $49,500 to go.

Worked Example

A die costs $60,000 installed and is expected to be worth $5,000 at the end of the program. It will make 200,000 good parts; this period it made 20,000. The quote carries a $0.35 per part tooling allowance.

Recoverable investment = $60,000 - $5,000 = $55,000
Amortization per part = $55,000 / 200,000 = $0.275 per part
This period's allocation = $0.275 x 20,000 = $5,500
Allowance headroom = $0.35 - $0.275 = $0.075 per part

Result: $0.275 per part, leaving $0.075 of the $0.35 allowance

Common Mistake

Dividing by total shots or strokes instead of good parts. Scrap, setup pieces and multi-cavity shots all change the count; amortize over the good parts the customer pays for, or the tool is never fully recovered.

Frequently Asked Questions

How do you calculate tooling amortization per part?: Subtract the expected residual value from the installed tool cost and divide by the lifetime good parts. A $60,000 die worth $5,000 at the end, over 200,000 good parts, amortizes at ($60,000 - $5,000) / 200,000 = $0.275 per part.
What happens to the price once tooling amortization is complete?: The amortization line comes out of the unit cost, so the price can drop by that amount if the contract says so. On the example that is $0.275 a part. Many supply agreements state this explicitly; check yours, because without it the supplier keeps the margin.
Should tooling be amortized or paid up front?: Paying up front keeps the part price clean and the tool usually belongs to the customer. Amortizing spreads the cost into the price, which suits the buyer's cash flow but leaves the supplier exposed if volumes fall short. Many shops amortize only when there is a committed minimum quantity.
Do I amortize over shots or over good parts?: Over good parts. A 4-cavity mold making 50,000 shots yields up to 200,000 parts before scrap; dividing by shots would charge each part four times its share, and dividing by gross parts would ignore the scrap the customer does not pay for.
How do I check the tooling allowance in a quote?: Compare the allowance per part with the amortization per part. A $0.35 allowance against $0.275 of amortization leaves $0.075 a part of headroom; a negative headroom means the price does not recover the tool at the planned volume.