Manufacturing Job Costing

Components of a job cost

Every manufacturing job has three cost categories: (1) Direct labor — the time operators spend on each operation, multiplied by their shop rate. (2) Direct materials — the raw material, hardware, and consumables used. (3) Overhead — everything else: rent, utilities, machine depreciation, insurance, administrative staff. Overhead is typically applied as a percentage of labor or as a machine-hour rate.

The sum of these three is your total job cost. Your margin is the difference between what you charged and what it actually cost.

Estimated vs actual costs

Your quote estimates what a job will cost based on planned operations and expected times. The actual cost is what you spent. The gap between estimated and actual is where you learn. If you consistently under-estimate setup time on the lathe, you're quoting low and losing margin on every lathe job. But you'll only know that if you track actual time against estimated time at the operation level.

Shop rate calculation

Your shop rate is the hourly cost of running a machine or workstation. It includes: operator labor cost (wages + benefits + taxes), machine depreciation or lease cost, tooling and consumable costs, and allocated overhead. A typical small job shop rate ranges from $65-$150/hour depending on the machine and market.

The mistake many shops make is using one rate for everything. A 5-axis CNC costs more per hour than a manual mill. If you use the same rate for both, you're overcharging for simple work and undercharging for complex work.