Guide
How do you build a should cost analysis for a CNC machined or die-cast part?
A should cost analysis is an estimate of what a part ought to cost an efficient supplier to make, built line by line from material, setup, cycle time, tooling, finishing, inspection, packing, freight, overhead and profit, so that a buyer can compare it with a quote and see exactly where the two numbers part ways.
By Saola Manufacturing engineering team · Published · Updated
The problem it solves is a familiar one. A quote for a machined housing or a die-cast bracket arrives, the price looks high, and nobody on the buying side can say why. Comparing it with two other quotes only tells you that prices differ; it does not tell you which assumption drives the difference or what you could change on the drawing to bring it down. A should cost answers both questions. This guide gives a build-up you can fill in for CNC and die-cast parts, a decision table for reading the gap, and the wording to put on the RFQ so the next round of quotes can be compared line by line.
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What is a should cost analysis, and when does a buyer need one?
A should cost analysis is cost analysis rather than price analysis: it rebuilds the cost of each element of the part instead of only comparing the total with other prices. You need one when a quote looks wrong and the only evidence you have is other totals.
The distinction comes from US federal acquisition rules, where both terms are defined in regulation. The Federal Acquisition Regulation defines price analysis as evaluating a proposed price without evaluating its separate cost elements and profit, and cost analysis as the review and evaluation of those separate elements (FAR 15.404-1). It then calls should-cost reviews a specialized form of cost analysis that looks at the economy and efficiency of the supplier's workforce, methods, materials and equipment instead of assuming that historical costs are reasonable (FAR 15.407-4). That last point is the useful one for a parts buyer: the question is not “what did this part cost last time” but “what should it cost if it were made sensibly.”
Recognize the situations where a should cost earns its effort:
- Quotes for the same drawing are far apart and you cannot tell which supplier misread it.
- A long-running part is re-quoted higher and the supplier cites “material and labor” without detail.
- A new part costs much more than a similar part you already buy, and the drawing differences look minor.
- You are deciding between machining from solid and casting plus machining, and need to know the quantity where the answer flips.
- You need a target price before you send an RFQ, so you know a credible quote when you see one.
A should cost is not a demand that the supplier hit your number. It is a structured set of assumptions. When your estimate and the quote disagree on a line, one of you has assumed something the other did not, and that is the conversation worth having.
Why does a machining or die casting quote come in higher than expected?
Most high quotes trace back to a few causes: the order quantity is too small to spread setup and tooling, the drawing forces extra setups or slow finishing passes, the inspection or documentation load is heavier than it looks, or a finish and its handling add a second supplier's lot charges. Margin and risk pricing come after those, not before.
Check them in this order, because the first ones are the cheapest to confirm:
- Quantity versus fixed cost. Programming, fixtures, first article inspection and, for castings, the die are fixed costs. Divided over a small batch they dominate the unit price; the NRE guide covers how those charges are quoted.
- Setups and part handling. Every face that needs its own orientation adds a setup, a fixture and an operator touch. Features on six sides of a block cost far more than the same features on two.
- Cycle time from tolerances and finish. Tight tolerances and fine surface finish callouts force lighter cuts, extra finishing passes and in-process checks. The CNC machining cost drivers guide walks through which features add time.
- Material form and certification. An uncommon alloy, a large bar size for a thin part, or a mill certificate requirement on a small order can make the raw stock the biggest line.
- Inspection and paperwork. Full-dimension reports on every lot, CMM programs, PPAP-style packages and material traceability are real labor that rarely shows on the drawing.
- Finishing and outside processing. Finishing shops commonly price anodizing, plating or coating per load or per part with a minimum lot charge, and masking, packing and transport between plants come on top.
- Risk, overhead and margin. Unclear requirements get priced as risk. A vague drawing often costs more than a tight one because the supplier quotes the worst interpretation.
For die-cast parts the order changes slightly. A process-based cost model comparing conventional and semisolid die casting found cycle time, scrap rate and die life to be the main drivers of unit production cost (Chienwichai et al., The Engineering Economist, 2016), so a cast part's should cost lives or dies on those three assumptions plus the machining that follows the casting.
How do you build the should cost line by line?
Estimate each cost element separately from the drawing and the process route: material, setups, cycle time, tooling, outside processing, inspection, packing and freight, then overhead and profit. Write down the assumption behind every line, because the assumptions are what you will compare with the supplier.
Start with the process route, not the price. List each operation in order, for example saw, turn op 10, turn op 20, mill op 30, deburr, finish, inspect, pack. For a casting, the route starts with the die-cast shot, then trim, then any machining, impregnation, finishing and inspection. Each operation then gets a setup time, a run time and a rate.
Material. Size the stock from the part's bounding dimensions plus a facing and cut-off allowance, convert to weight, and price it at the current mill or distributor price for that alloy and form. For castings, use the shot weight including runners and overflows, then credit back the runners and overflows that are remelted, less an allowance for melt loss.
Cycle time. For turning, the time for one cut is the length of cut divided by the feed per revolution times spindle speed, and spindle speed comes from the cutting speed and the diameter. For milling, university machining courses compute the feed rate as spindle speed times number of teeth times feed per tooth, and the machining time as the length of cut plus the approach distance (and, for face milling, the cutter overtravel), divided by that feed rate (Montana State University, milling examples). Add tool changes, rapid moves and part loading. If you have CAM software, a simulated toolpath is better than hand arithmetic.
Rates. Multiply time by a machine rate that includes the operator, the machine's depreciation, floor space and power. Rates vary by machine type and country; the CNC machining hourly rate guide explains what goes into them. Use one rate per machine class, not one blended rate for the shop.
Price movement. When a repeat part is re-quoted higher, check the claimed increase against an index rather than an anecdote. The US Bureau of Labor Statistics publishes a monthly producer price index for machine shops (NAICS 332710) (BLS PPI for machine shops, via FRED). It tracks selling prices of US machine shops, so treat it as a directional check on whether industry prices have moved as much as the re-quote implies, not as a measure of any one supplier's costs. For the material line, compare the claimed increase with the change in the alloy's own market price over the same months.
| Line | How to estimate it | What to ask the supplier to break out |
|---|---|---|
| Material | Stock size or shot weight × alloy price; casting runner credit | Alloy, stock form and size, weight per part, certificate cost |
| Setup | Setups per part × setup time × rate ÷ batch quantity | Number of setups and the batch size assumed |
| Machining cycle | Toolpath time per operation × machine rate | Cycle time per operation and machine type |
| Casting cycle | Machine rate × cycle time ÷ cavities, plus trim | Machine size, cavities, cycle time, scrap allowance |
| Tooling and NRE | Die, fixtures, programming, gauges; amortized or separate | Each item, ownership, and the volume used to amortize |
| Outside processing | Finish price per load or per part, plus lot charge and transport | Finish spec, masking, lot charge, who pays freight between plants |
| Inspection | First article, in-process and final checks; report labor | Inspection plan, sample size, report type |
| Packing and freight | Packaging per part; freight per shipment under the agreed Incoterm | Pack method, parts per carton, Incoterm and named place |
| Overhead and profit | A markup on the lines above | Usually not broken out; compare totals instead |
How do you compare your should cost with the supplier's quote and find the gap?
Put your estimate and the quote side by side at the same quantity, the same Incoterm and the same scope, then find the one or two lines that hold most of the difference. Fix the assumption behind those lines, either on your side or on the drawing, before you negotiate anything else.
First normalize. Many apparent gaps are scope gaps: one quote includes the die and another amortizes it, one includes finishing and another excludes it, one is priced at the port of loading and another at your dock. Landed comparisons also need duty and fees; the landed cost guide shows how to add them. Then compare line by line and use the table below to decide what to do.
FAR 15.404-1 describes the same discipline for government buyers: verify the cost data, evaluate the effect of the supplier's current practices on future costs, and compare the proposed cost of each element with costs actually incurred before and with independent estimates (FAR 15.404-1). For a commercial buyer, the independent estimate is your should cost and the prior actuals are your last purchase orders.
Split fixed from variable cost using two quantity breaks. When a supplier will not break out costs, the quantity breaks on the quote still let you separate them. Unit price at quantity Q behaves roughly as P = V + F ÷ Q, where V is the variable cost per part (material, cycle time, finishing per part) and F is the fixed cost spread over the batch (setup, programming, fixtures, first article, lot charges). With prices P1 at Q1 and P2 at Q2, F = (P1 − P2) ÷ (1/Q1 − 1/Q2) and V = P2 − F ÷ Q2. F ÷ Q at the quantity you actually release is the share of each unit price that is batch cost. Then compare each half with your own build-up:
- If V is well above your material plus cycle time plus finishing per part, the gap is in the process: ask for stock size, number of setups and cycle time.
- If F is well above your setup, programming and fixture estimate, the supplier is planning more setups, more fixtures or heavier first article work than you assumed, or is loading tooling into the price.
- If a third quantity break does not fit the same V and F, the supplier has changed something between quantities, such as a different machine, a dedicated fixture or a different finish lot size; ask what changes at that quantity.
| Where the gap sits | Likely cause | What to do |
|---|---|---|
| Material | Larger stock, different alloy or form, certificate surcharge | Confirm alloy and form; allow an equivalent alloy if function permits |
| Setup per part | Small batch, more setups than you assumed | Quote several quantities; move features to fewer faces |
| Cycle time | Tight tolerances or fine finish on non-functional features | Open tolerances and finish where function allows |
| Casting cycle or scrap | Porosity risk, thick sections, few cavities | Review wall thickness and leak-test needs; ask about cavities |
| Tooling | Die or fixtures priced into the part, or high die complexity | Ask for tooling as a separate line and state your volume |
| Finishing | Lot charges on small runs, masking, transport | Consolidate finishes; simplify masking; combine releases |
| Inspection | Full reports on every lot, CMM on every feature | Reserve full inspection for critical features; sample the rest |
| No single line | Risk pricing from an unclear drawing, or margin | Clarify the drawing first; then discuss price |
What should the RFQ ask the supplier to break out so the next quote is comparable?
Ask for the price at two or three quantities, tooling and NRE as separate lines, finishing as a separate line, the Incoterm and named place, and the assumptions behind setups and cycle time. Do not ask for a full cost breakdown on every part; ask for it on the parts where your should cost and the quote disagree.
- Quantities. “Quote unit price at 100, 500 and 2,000 per release” shows the setup and tooling share directly, because the drop between quantities is mostly fixed cost being spread.
- Tooling and NRE. “List die, fixtures, programming and gauges separately; state ownership.” The die casting mold cost guide covers what drives die price.
- Material. “State alloy, stock form and size, and weight per part.”
- Process. “State the number of setups and the machine type for each operation.”
- Finishing. “Price finishing as a separate line, including any lot charge.”
- Inspection. “State the inspection plan and report included in the price.”
- Commercial basis. “State the Incoterm, named place, packing method and production site.”
On the drawing itself, the biggest lever is to separate critical from non-critical. Mark which features carry function, open general tolerances on the rest, and say which surfaces need a finish callout. A supplier who can see what matters prices the part, not the risk of guessing.
How is a should cost conversation handled on a Saola order?
Send the drawing with the lines you want broken out, and tell us where your estimate and our quote differ. We answer on the assumption behind each line rather than on the total.
Saola Manufacturing is a managed manufacturing partner, not a single factory, so who makes each operation matters to the cost build-up. CNC turning and CNC milling run at our lead CNC plant in Vietnam, which means setup, cycle time and machining inspection come from the plant that will actually cut the part. Die casting and surface finishing are done by partner plants we manage, so those lines carry the partner's price and the transport between sites. Each quote names the production site and the country of origin, which you need for the landed comparison.
Every quote states a unit price at your volume, the tooling cost and a short manufacturability note. If a feature or tolerance is driving the price, the note says so, and that is usually the fastest way to close a should cost gap. Send the drawing and your quantity breaks through the quote form.
Frequently asked
Is should cost the same as target cost?
No. Target cost starts from what the product can afford and works backward to a part price. Should cost starts from how the part is made and works forward. When the should cost is above the target, the drawing or the process has to change, not just the price.
Should I share my should cost with the supplier?
Share the assumptions on the lines that disagree, such as stock size, setups or cavities. Sharing only a target total invites a matching number without an explanation, while sharing assumptions lets the supplier correct you or find a cheaper route.
How accurate does a should cost need to be?
Accurate enough to locate the gap. Its value is in showing which line differs and why, not in predicting the quote exactly. Use consistent rates and document each assumption so the estimate can be revised quickly when the supplier answers.
Does a should cost include tooling for a die-cast part?
Yes, either as a separate line or amortized over an agreed volume. Keep it separate when comparing quotes, because suppliers amortize differently and a die priced into the part can hide a much higher total.
What if the supplier will not break out costs?
Ask for quantity breaks and separate tooling and finishing lines instead. Two quantity breaks are enough to split fixed from variable cost (see the method above), and none of these requests asks the supplier to disclose internal rates.
Sources
- FAR 15.404-1, Proposal analysis techniques, Federal Acquisition Regulation (48 CFR), acquisition.gov, accessed October 2026
- FAR 15.407-4, Should-cost review, Federal Acquisition Regulation (48 CFR), acquisition.gov, accessed October 2026
- Producer Price Index by Industry: Machine Shops (PCU332710332710), US Bureau of Labor Statistics via Federal Reserve Bank of St. Louis FRED, accessed October 2026
- Model-based cost estimates for selecting a die casting process, Chienwichai, Wannasin, Sinthavalai and Meemongkol, The Engineering Economist, 2016
- Milling examples, machining time calculations (MET 314), Montana State University, accessed October 2026