Tooling costs

Tooling costs
See also
Non recurring cost Fixed cost Differential costing Irrelevant cost Designed quality Determining the length of the production cycle Differential cost Conversion cost Committed cost

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.

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.

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.

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:

• 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.

Examples of Tooling costs

• Die Casting Tooling – Die casting tooling is used in a variety of industries such as automotive, aerospace, and medical. This type of tooling is used to cast parts and components from molten metal. The cost of die casting tooling is largely dependent on the complexity of the parts and the number of impressions that will be cast.
• Injection Molding Tooling – Injection molding tooling is used to create plastic parts and components for a variety of industries. The cost of this type of tooling is dependent on the complexity of the parts and the number of cavities in the mold.
• Forging Tooling – Forging tooling is used to create metal parts and components. This type of tooling typically consists of dies, punches, and mandrels. The cost of forging tooling is dependent on the complexity of the parts and the number of pieces that will be produced.
• Machining Tooling – Machining tooling includes a variety of tools such as drills, taps, and end mills. The cost of machining tooling is largely dependent on the complexity of the parts and the number of operations that will be performed.

Advantages of Tooling costs

• Tooling costs allow manufacturers to accurately estimate the cost of producing a given part. This helps to ensure that the price of the parts is reasonable and allows for better forecasting and budgeting.
• Tooling costs help to account for the cost of high-precision parts and components, which require more specialized tools and parts.
• Tooling costs can help to reduce the amount of waste produced during the manufacturing process, as they provide an accurate estimate of how much material is needed to create a certain part. This can help to reduce waste, as well as reduce costs.
• Tooling costs can help to ensure that the parts are produced on time and to the highest quality standards, as the tools used are designed for the specific part being produced. This helps to reduce the amount of time and money that needs to be spent on reworking parts.
• Tooling costs can also provide a competitive advantage, as they provide a more accurate measurement of the cost of production, which can be used to adjust pricing and make a business more competitive in the marketplace.

Limitations of Tooling costs

• Tooling costs are not always accurately estimated and can be more expensive than expected. This is due to factors such as the complexity of the design, the type of materials used, and the number of components within the tool.
• Tooling costs can cause delays in production due to the long time it takes to manufacture and set up the tool.
• Tooling costs can vary significantly depending on the type of tool being used and the production volume needed.
• Tooling costs can be impacted by the cost of labor and materials used.
• The tooling costs can be higher for mass production as opposed to smaller production runs.
• Tooling costs can be difficult to calculate accurately, as it requires knowledge of the overall part program life.

Other approaches related to Tooling costs

• An alternative approach to evaluating tooling cost is through a cost/benefit analysis, where the tooling cost is weighed against the potential increased production rate, quality, and profitability.
• Another approach is to compare the tooling cost of the same part being made by different manufacturers, allowing the buyer to choose the vendor with the most cost-effective tooling.
• A third approach is to consider the time required to produce the tooling, as well as the cost of the materials used in the process.
• Additionally, tooling cost can be reduced by looking for alternative materials that have similar properties as the desired component but at a lower cost.

In conclusion, there are many different approaches to evaluating tooling costs that need to be considered in order to ensure cost-effectiveness. This can include cost/benefit analysis, comparing tooling cost among different vendors, considering the time and materials used in the process, and researching alternative materials.

References

• Carmichael D., Graham L. (2010), Accountants' Handbook, John Wiley & Sons, New Jersey.
• Lembersky M. (2016), Realistic Cost Estimating for Manufacturing, SME, London.
• Poli C. (2001), Design for Manufacturing: A Structured Approach, Elsevier, New Delhi.
• Rudd C.D., Long A.C., Kendall K.N., Mangin C. (1997), Liquid Moulding Technologies, Elsevier, Abingdon.

Author: Dawid Barcik