Cost breakdowns - reduce costs

Ahead Consulting – www.aheadconsulting.com – (562) 277 5608

Cost Breakdowns



What is a cost breakdown?Cost breakdowns from your suppliers for purchased items list each cost element (raw material, manufacturing, SG&A, profit, etc.), their quantities, and their unit costs.

Cost breakdown example


How can Cost Breakdowns help reduce your costs?• Cost breakdowns can be requested from your suppliers for

the parts for which you own the design.• Cost breakdowns can be used two ways to achieve cost

reduction:

Verify that your suppliers are charging the right price for your purchased items

It is often difficult to determine if the cost of a part is fair. Is the supplier using the appropriate material cost, are they

charging you for the right raw material quantity, is the cost based on actual manufacturing times?


How can Cost Breakdowns help reduce your costs?

Secondly, cost breakdowns will help you design a lower cost part.

It is important to know the percentage of each cost element to know which element to look at for cost reduction.

Without cost breakdowns, if the price seems a little high, it is impossible to be sure it is related to high processing costs or expensive materials.


What to look at in a cost breakdown? How expensive is the raw material you specified? Does it compare to

what you would be paying or other suppliers are paying?

How much material does your part require and does it correspond to what you specified? If not, what is the scrap percentage? Why?

How does the processing cost compare to other items made through the same process? Is it higher than other parts? Why?

What types of labor costs are required and are the rates reasonable?

What is the profit, is it reasonable?


• For more information on “Cost Breakdowns” and other Cost Reduction techniques, visit

www.aheadconsulting.com

• Use to analyze your Cost Breakdowns

Cost breakdowns - reduce costs

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