AssembloERP
Here is a conversation we have had more times than is comfortable. An owner shows us a job he quoted at 22% margin. We walk the numbers with him. It made 6%. Nothing was stolen and nobody was lazy — the quote simply did not include four things that the job consumed.
The four layers of a real job cost
1. Material, at issued quantity
Your BOM says 10 kg. Stores issued 11.2 kg because the first piece was scrapped and the cut left an unusable end. Cost the 11.2.
The fix is a yield assumption per item, based on your own history rather than the theoretical figure — for sheet metal work an 8-12% allowance is common, for machining it depends entirely on the part. Then measure whether reality matches, which is only possible if rejection is a recorded transaction and not a comment.
2. Labour, by operation, including setup
Not "labour is 15% of material". Cutting takes 20 minutes, welding 45, finishing 30, and setup takes 40 minutes whether you make 10 pieces or 500.
| Run size | Setup (40 min) per piece | Effect on unit cost |
|---|---|---|
| 500 pieces | 4.8 seconds | Negligible |
| 50 pieces | 48 seconds | Noticeable |
| 10 pieces | 4 minutes | Often the whole margin |
This is why small repeat orders from a favourite customer quietly lose money. It is also why a minimum order quantity is a costing decision, not a rudeness.
3. Overhead, per machine hour
Spreading overhead as a flat percentage of material cost punishes cheap-material jobs and subsidises expensive-material ones. Do it per hour of the resource that is actually scarce.
Take the annual cost of running a machine — power, maintenance, tooling, the operator's share, a slice of rent — divide by realistic available hours, and you have a rate. A press at Rs 6,00,000 a year over 1,800 usable hours is Rs 333 an hour. A job that occupies it for 3 hours carries Rs 1,000, regardless of what the raw material cost.
4. The job-specific extras
- Job-work charges paid outside — plating, heat treatment, powder coating
- Freight in and out, especially if you absorbed it to win the order
- Tooling, dies or fixtures made for this customer
- Testing, certification and sample approval rounds
- Packaging that is specific to the buyer's requirement
A worked example
Fabricated bracket, 200 pieces, quoted at Rs 340 each — Rs 68,000.
| Line | Quoted | Actual |
|---|---|---|
| Material (MS sheet) | Rs 30,000 | Rs 33,600 (12% scrap) |
| Labour | Rs 12,000 | Rs 13,400 (setup twice, split batch) |
| Machine overhead | Rs 6,000 (flat 20% of material) | Rs 9,300 (28 machine hours) |
| Powder coating (job work) | Not quoted | Rs 4,800 |
| Freight out | Not quoted | Rs 1,900 |
| Total | Rs 48,000 | Rs 63,000 |
| Margin | 29% | 7.4% |
Nothing here is exotic. Scrap, a split batch, honest overhead, and two lines that were simply forgotten. That is the whole gap.
What the system has to do for this to work
Job costing is not a report you buy. It is a by-product of recording four things as they happen: material issued against a job, rejection with a reason, time or machine hours against an operation, and outside processing charges linked to the same job. If any one of those is captured on paper, your costing is an estimate wearing a suit.
Two related reads: job work without leakage, because outside processing is the most-missed line, and why stock never matches books, since costing sits on the same recording layer. When you want this scoped against your own products, our team will walk your process before recommending anything.
