Tooling costs

From CEOpedia | Management online
Tooling costs
See also

Tooling costs is one of the most complex cost elements to evaluate. The tooling cost per part is the depreciated tooling price over the life of the tool divided by the number of parts made during the tool life. This requires a knowledge of the overall part program life which can be substituted in the expression presented under the main machine cost.

In practice, the tooling cost is often separated from the other manufacturing cost elements, mainly because the tooling is component specific. Therefore, the customer generally meets the overall program tooling costs and retains ownership of all tool sets. This ownership also protects against copyright violations. It is nevertheless as important cost element associated with the manufacturing process and should be integrated in the overall manufacturing cost for any negotiations between the manufacturer and the buyer. This is also very important when comparing different potential materials process such as those involving steels, aluminium alloys, and polymer composites[1].

Initial tooling costs are sometimes treated as an intangible asset, but they are more often considered an element of property, plan, and equipment or, in the case of certain long-term contracts, inventory[2].

Tool Cost Assignment

Information from previous production runs and data from suppliers are useful in determining the life of perishable tools. In computing the number of perishable tools for a production run, allowance must be made for rework and scrapped parts. When durable tooling is usable only on the product being estimated, its entire cost (less any salvage value) must be assigned to the product. If the tooling can be used on similar products, it should be prorated accordingly. Knowledge of future production plans may help in assigning a reasonable percentage of the tool cost to the product being estimated. Because of the difficulty in assigning costs accurately for durable tooling, some companies include this in factory overhead[3].

Fixed cost elements

Fixed costs are those elements of piece cost which are a function of the annual production volume. Fixed costs are called fixed because they are typical one-time capital investments ( building, machinery, or tools) or annual expenses unaffected by the number of components manufactured (building rents, engineering support or administrative salaries). The main elements of fixed cost include[4]:

  • main machine cost
  • auxiliary equipment cost
  • tooling cost
  • building cost
  • overhead labour cost
  • maintenance cost
  • cost of capital

Relative Tooling Construction Costs

To estimate relative tool construction costs for a part, designers must understand in some detail the complex relationships between the part and its mold. Certain features and combinations of features result in more complex molds and, hence higher tooling costs. It may be that, in order to meet a part's function, such features or their combinations cannot be changed or eliminated, but in many cases they can be saving time and money. In any case, designers should know the tooling costs their designs are causing, and they should make every attempt to reduce them. The time required for tooling to be designed manufactured, and tested is also a factor. In general, however, the higher the cost of tooling, the longer the time required for making the tool[5].


  1. C.D. Rudd, A.C. Long, K.N. Kendall, C. Mangin 1997, p.409
  2. D.R. Carmichael, L. Graham 2010, p.99
  3. M. Lembersky 2016, p.70-71
  4. C.D. Rudd, A.C. Long, K.N. Kendall, C. Mangin 1997, p.407
  5. C. Poli 2001, p.40-41


Author: Dawid Barcik