Costengineering | Skills Pool
Costengineering Manufacturing cost accounting, analysis, and reduction for automotive operations. Covers overhead/burden rate calculation, variance analysis, make vs buy decisions, value engineering, and cycle time to cost conversion. USE WHEN user says 'cost analysis', 'overhead rate', 'burden rate', 'variance analysis', 'make vs buy', 'value engineering', 'cost reduction', 'should cost', 'labour rate', or needs manufacturing cost guidance.
Manufacturing cost accounting, analysis, and reduction methodologies for MNMUK operations. Complements QuoteEstimator (quick quotes) and SupplyChain (strategic sourcing) with detailed cost engineering.
Workflow Routing
Workflow Trigger File OverheadCalculation "overhead rate", "burden rate", "labour rate" Workflows/OverheadCalculation.mdVarianceAnalysis "cost variance", "variance investigation" Workflows/VarianceAnalysis.mdMakeVsBuy "make vs buy", "insource", "outsource" Workflows/MakeVsBuy.mdCostReduction "cost reduction", "value engineering" Workflows/CostReduction.md
Cost Accounting Fundamentals
Cost Structure
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更新时间 2026年3月29日
职业 ┌─────────────────────────────────────────────────────┐
│ TOTAL PRODUCT COST │
├─────────────────────────────────────────────────────┤
│ ┌─────────────────────────────────────────────┐ │
│ │ MANUFACTURING COST │ │
│ │ ┌───────────────────────────────────────┐ │ │
│ │ │ PRIME COST │ │ │
│ │ │ ┌─────────────┐ ┌─────────────┐ │ │ │
│ │ │ │ Direct │ │ Direct │ │ │ │
│ │ │ │ Material │ │ Labour │ │ │ │
│ │ │ └─────────────┘ └─────────────┘ │ │ │
│ │ └───────────────────────────────────────┘ │ │
│ │ ┌───────────────────────────────────────┐ │ │
│ │ │ Manufacturing Overhead │ │ │
│ │ │ (Indirect labour, utilities, │ │ │
│ │ │ depreciation, maintenance) │ │ │
│ │ └───────────────────────────────────────┘ │ │
│ └─────────────────────────────────────────────┘ │
│ ┌─────────────────────────────────────────────┐ │
│ │ SG&A Overhead │ │
│ │ (Sales, admin, quality, engineering) │ │
│ └─────────────────────────────────────────────┘ │
└─────────────────────────────────────────────────────┘
Cost Categories Category Examples Behaviour Direct Material Raw material, bought-out components Variable Direct Labour Operator time on product Variable Manufacturing Overhead Supervision, utilities, depreciation Mixed SG&A Sales, admin, quality Fixed
Labour Rate Structure Rate Type Components Use Direct Labour Rate Wages + benefits Actual operator cost Burdened Labour Rate Direct + manufacturing overhead Product costing Fully Burdened Rate Burdened + SG&A allocation Pricing
MNMUK Labour Rate Build-Up:
Base Hourly Wage £15.00
+ Employer NI (13.8%) £ 2.07
+ Pension (5%) £ 0.75
+ Holiday accrual £ 1.44
+ Training allowance £ 0.50
─────────────────────────────────────────
= Direct Labour Rate £19.76
+ Manufacturing Overhead (150%) £29.64
─────────────────────────────────────────
= Burdened Labour Rate £49.40
+ SG&A (25%) £12.35
─────────────────────────────────────────
= Fully Burdened Rate £61.75
Machine Hour Rates Cost Centre Machine Rate Labour Rate Combined CNC Turning £35/hr £50/hr £85/hr CNC Milling £40/hr £50/hr £90/hr 5-Axis £65/hr £55/hr £120/hr Swiss £55/hr £55/hr £110/hr EDM £45/hr £50/hr £95/hr Assembly £10/hr £50/hr £60/hr
Overhead Rate Calculation
Manufacturing Overhead Components Category Examples Allocation Base Indirect Labour Supervisors, material handlers Direct labour hours Utilities Electric, gas, water Machine hours Depreciation Equipment, tooling Machine hours Maintenance Repairs, PM Machine hours Consumables Cutting tools, coolant Machine hours Facility Rent, rates, insurance Floor space
Predetermined Overhead Rate = Estimated Overhead / Estimated Activity
Example:
Annual Manufacturing Overhead: £1,200,000
Estimated Machine Hours: 30,000 hrs
────────────────────────────────────────────
Overhead Rate: £40/machine hour
Absorption vs Actual Term Definition Absorbed Overhead Hours worked × Predetermined rate Actual Overhead Real costs incurred Over-absorption Absorbed > Actual (favourable) Under-absorption Absorbed < Actual (unfavourable)
Product Cost Calculation
Standard Cost Build ## Product Cost Sheet
**Part Number:** [P/N]
**Description:** [Name]
**Effective Date:** [Date]
### Material Cost
| Component | Qty | Unit Cost | Extended |
|-----------|-----|-----------|----------|
| Raw material | [kg] | £[X]/kg | £[X.XX] |
| Bought-out parts | [#] | £[X.XX] | £[X.XX] |
| **Material Total** | | | **£[X.XX]** |
### Conversion Cost
| Operation | Time (min) | Rate (£/hr) | Cost |
|-----------|------------|-------------|------|
| Op 10 - Turn | [X] | £85 | £[X.XX] |
| Op 20 - Mill | [X] | £90 | £[X.XX] |
| Op 30 - Inspect | [X] | £60 | £[X.XX] |
| **Conversion Total** | [X] min | | **£[X.XX]** |
### Cost Summary
| Element | Cost | % |
|---------|------|---|
| Material (incl. scrap/yield loss) | £[X.XX] | [X]% |
| Conversion (machining + setup amortised) | £[X.XX] | [X]% |
| Inspection / Quality | £[X.XX] | [X]% |
| General Overhead Allocation (facility, indirect costs) | £[X.XX] | [X]% |
| **Standard Cost (Manufacturing)** | **£[X.XX]** | [X]% |
| SG&A + Profit Margin (e.g. 25%) | £[X.XX] | [X]% |
| **Total Selling Price** | **£[X.XX]** | 100% |
> **Note:** Always include general overhead allocation (facility rent, rates, indirect labour absorption) as a distinct line item, and always show target selling price = Standard Cost ÷ (1 − margin%) to confirm commercial viability.
Yield and Scrap Impact Gross Material Cost = Net Material × (1 / Yield %)
Example:
Net material required: 0.5 kg
Material yield: 85%
Gross material: 0.5 / 0.85 = 0.588 kg
Scrap cost: 0.088 kg × £5/kg = £0.44
Variance Analysis
Variance Types Variance Formula Favourable When Material Price (Actual - Standard Price) × Actual Qty Actual < Standard Material Quantity (Actual - Standard Qty) × Standard Price Actual < Standard Labour Rate (Actual - Standard Rate) × Actual Hours Actual < Standard Labour Efficiency (Actual - Standard Hours) × Standard Rate Actual < Standard Overhead Spending Actual - Budgeted Actual < Budget Overhead Volume Budgeted - Absorbed Absorbed > Budget
Investigation Thresholds Variance Type Investigate If Material Price >5% or >£500 Material Quantity >3% or >£300 Labour Rate >3% or >£200 Labour Efficiency >5% or >£500 Overhead >£1,000/month
Make vs Buy Analysis
Decision Framework ┌────────────────────────────────────────┐
│ MAKE VS BUY DECISION │
├────────────────────────────────────────┤
│ │
│ Make Cost = Variable + (Fixed/Volume) │
│ Buy Cost = Purchase Price + Logistics │
│ │
│ If Make < Buy AND Capacity Available │
│ → MAKE │
│ If Buy < Make OR No Capacity │
│ → BUY │
│ │
└────────────────────────────────────────┘
Cost Comparison Template Element Make Buy Material £[X] Included Direct Labour £[X] — Variable Overhead £[X] — Purchase Price — £[X] Freight/logistics — £[X] Incoming inspection — £[X] Variable Cost £[X] £[X] Fixed Overhead (avoidable) £[X] — Total Relevant Cost £[X] £[X]
Qualitative Factors Factor Make Buy Capacity utilization Increases No change Quality control Direct Relies on supplier Lead time Internal control Supplier-dependent IP protection Better Risk of exposure Flexibility Higher Lower Capital requirement Higher Lower
Cost Reduction Methodologies
Value Engineering (VE)
F unction - What does it do?A nalysis - Why is it needed?S ystem - How does it work?T echnique - Can it be done differently?
What is the function?
What does it cost?
What else can perform the function?
What does the alternative cost?
Cost Reduction Techniques Technique Application Typical Savings Eliminate Remove unnecessary features 5-20% Combine Merge operations 3-10% Simplify Reduce complexity 5-15% Substitute Alternative materials/processes 5-25% Standardize Use common components 3-10%
Target Costing Target Cost = Market Price - Required Margin
Example:
Market price: £50.00
Required margin: 25%
Target cost: £37.50
Current cost: £42.00
Cost gap: £4.50 (12% reduction needed)
Integration with Other Skills Skill Integration QuoteEstimator Use cycle times, apply overhead rates SupplyChain Should-cost analysis, TCO Pfmea Cost impact of failure modes Controlplan Inspection cost allocation Spc Cost of variation A3criticalthinking Root cause of cost variances
Key Metrics Metric Formula Target Conversion cost ratio Conversion / Total cost <60% Material yield Good output / Input >95% Labour efficiency Standard / Actual hours >90% Overhead absorption Absorbed / Actual 98-102% Cost variance (Actual - Standard) / Standard <±5%
Examples Example 1: Calculate product cost
User: "What's the full cost for part ABC-123?"
→ Gather material cost (raw + BOPs)
→ Calculate conversion (cycle time × rates)
→ Apply overhead absorption
→ Build standard cost sheet
→ Compare to quote price for margin
Example 2: Investigate cost variance
User: "Labour efficiency is 85% this month - why?"
→ Pull actual vs standard hours by product
→ Identify largest variances
→ Analyze root causes (setup, rework, learning)
→ Recommend corrective actions
→ Update standards if appropriate
Example 3: Make vs Buy decision
User: "Should we outsource the grinding operation?"
→ Calculate internal cost (variable + avoidable fixed)
→ Gather supplier quotes
→ Include logistics and quality costs
→ Assess capacity impact
→ Consider qualitative factors
→ Make recommendation with payback
02
Cost Accounting Fundamentals
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