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CM cost formula

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CM cost formula | 2 February, 2009

Hello all,

I'd really like some input on devising a competitive cost formula for a new CM business in eastern Canada. If anyone has any experience or suggestions with this I would appreciate your comments.



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CM cost formula | 2 February, 2009

Build in some flexibility to your costing. You will want to take into account how long various activities take and you will have to have your people do them in order to find out how long they take.

In the end you will have to do your own costing because if you ask 10 people how to do it you will get a dozen different answers.

BTW what part of down East are you in? I'm guessing you are a bluenoser.

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CM cost formula | 2 February, 2009

Thanks for your reply Stephen,

I don't have any idea of how CM's are currently pricing out their work. I don't want to undercut anyone, I just want to make sure I'm not too far over that I'm out of the market. Or, too far under and selling myself short. Any ideas as a starting point?

I'm from Toronto, not Nova Scotia ... did I sound that bad? lol :)

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CM cost formula | 6 February, 2009

You need to base your costs on your labor and overhead rate as well as how much your other expenses are(selling, admin, etc) and profit you want to make. For example (let's use nice round numbers) if you place 10,000 parts per hour and your labor and overhead rate is say $100/hr, you need to charge $.01 per placement. If you likewise take 5 minutes to load a feeder you need to charge $8.33 for each part that needs loaded, and so on down the line for each step in the process until you get the total. Once you have your total cost then decide what factor you want your manufacturing cost to be(again let's use a nice round number say 50%). Double your cost and now you have your price for the assembly

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CM cost formula | 17 February, 2009


How to calculate the proper overhead rate?

I seem to see every CM has their own Calculations.

thanks in advance.

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CM cost formula | 2 March, 2009

That might because every CM has a different overhead rate.

In general, your costs should be material+direct labor rate+overhead rate+markup and or profit margin.

For your overhead rate, consider your non-direct labor, and your facility costs. Amortize that over your customer base; and adjust based on contribution/customer. Calculate contribution based on volume. That house account/steady runner would pay a lower contribution than the one-off prototype customer.

Ours varies depending on volume and total sales contribution, and is included as a part of our mark-up. The regular higher volume customer pays somewhere around 15% in markup; the one-off customer can pay as much as 65-70%.

cheers ..rob

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