on topic- Costing in small machine shops

Hello gentlemen, I'm kind of new to this group,and while I notice a lot of non machining talk I'm hoping to get a bit of help.
A little back history may help, I have been machining for 30 plus years, small shops and a lot of prototype works,recently I have been doing some odd jobs on an old Haas VF0 I have in my garage,mainly pocket money type stuff. The place I'm working for is starting to go under so I'm thinking it might be a good time to go out on my own, I have a few leads to pickup some work. The main question I have now is how to go about accurately quoting prices,my garage stuff seems to come up a little short sometimes,considering the amount of non-machining time that goes into parts, the basic cost I seem to have like cycle time ,material cost and such,but I am having difficulty in what I call the stuff around the edges.The time it takes to order material and write up invoices,material handling, stuff like that. If I get to a place when I need office staff and other people that are needed but don't actually machine parts, their costs need to be part of the cost and have to go in the the unit cost of the parts I'm making. The question is basically how do you calculate those costs,is there a formula or something that you use, like cycle time x hourly rate x 1.5 or something. any help would be welcome Bill
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On Thursday, 5 April 2012 17:19:43 UTC+1, William Cordova wrote:

Make an annual expenses budget, include tear and wear of the machine, coolant, coolant disposal, electricity, etc.
Then estimate how many hours a week you can have that machine running, allow for holidays and sick time and get the total number of hours you can work to cover your expenses.
Divide the total expenses with the total number of hours and you get your number. Be careful, do not overestimate the number of hours you will be working, work can dry up.
Add the material costs to each individual job on top of the hours, allow for some scrap.
HTH, DanP
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Costs are usually first split into 4 basic categories: "direct labor", "indirect labor", "direct overhead", and "indirect overhead"--from those, any number of sub-categories can be added and tracked...suggest look up those four terms as it'll probably help you to better understand the situation...
FWIW, historically, the term "spreadsheet" comes from accounting methods of the past, where a ledger was used whose pages folded out, sometimes 18 inches or more to the right--basically, each collumn was reserved for journal entries that fell into some specific category...of course, you will probably want to use a computer instead..
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On Thu, 5 Apr 2012 09:19:43 -0700 (PDT), William Cordova

======================One of the saddest epitaphs for small machine shops is
They made it in the shop, but they lost it in the ledger...
The unfortunate truth is that "bootstrapping" a small business into something bigger is becoming increasingly difficult because of the proliferation of environmental, zoning, tax, etc. etc. regulations, the costs of which [direct fees and compliance costs] are rapidly becoming a larger and larger fraction of the business expenses.
Note that this is over and above the actual operating costs.
Accounting and particularly cost accounting is an arcane art, for example the depreciation schedules on your machines may have more of an impact on bottom line net profits than material costs because of the tax effects.
While there are many good cost tracking computer programs available and will prove to be very helpful, the long-term financial implications of management decisions such as "lease v buy" [equipment and premises] must be understood.
Assuming you wish to build a going/growing concern, many of the common industry accounting/costing techniques used for "asset stripping" and skimming by "hired gun bonus baby" management will be counterproductive for you.
Advice tends to be worth what you pay for it, and I suggest you consult a knowledgable [cost AND Small Business] accountant (may be two people) that can walk you through not only the shop but business operating costs. One major concern should be liability insurance, and another is the structure of the business, i.e. subchapter S corporation, proprietorship, limited liability partnership, etc.
Good luck on your start-up. As start-ups like yours are a major source of job growth and innovation, placing undue restrictions and imposing arcane accounting and other restrictions, as we are increasingly doing, is simply "killing the goose that lays the golden eggs."
--
Unka' George

"Gold is the money of kings,
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-0700 (PDT) typed in alt.machines.cnc the following:

You could just go with something like that.
One suggestion is to figure out how much you need to spend just to have things sit idle. (The cost of just having the utilities hooked up, and such.)     You'll have to include a category of "Over head" - shop towels, light bulbs, garbage collection service, end mills, bandsaw blades, etc.     But in short: you need to start tracking how much time you're spending on "non-value adding activities" (material handling, paperwork, coffee, etc) per job. That's going to vary per job, but you will get an average you can then guess about.
The Big Boys will break a job up into "design, material handling, first steps, second, ...Nth step, N+1, cleanup/deburr and the prep for shipping. Then have a rate for each step. It takes so long to cut the raw materials to size, that costs \$N. or (\$N/number of parts). That includes recording the time involved in finding the stuff, recording the spec on the material (heat lot, etc) setting it up, counting complete parts, and getting them to the next step. Then the same thing - how long does it take to set up, count that you have enough raw material, run the first part, check against the design specs, then run the parts (cycle time). count that you complete the right number of parts. Repeat for steps 2 though N+1.     I'll leave it to you if you want to include time for the making of and drinking coffee in those run times.
If this seems like a lot - I worked in aerospace, and the plan doesn't take off untill the weight of the paperwork is at least equal to the gross takeoff weight of the plane. You might not need to keep meticulous records of material sources - OTOH, you will want to track source/costs just to know what it is going to cost you.
I hope that you can makes some sense of all this - it "seems" to be intuitively obviously to me, but .... maybe not to you.
tschus pyotr

--
pyotr
Go not to the Net for answers, for it will tell you Yes and no. And
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Bill,
A lot depends on what your goal is. Build a company, single person operation with full time income or supplement retirement income.
If you are looking for production work then your hourly rate will be largely determined by what your competitors charge. However in 30 years if you haven't the drive or burning desire to start your own business by now then starting a production job shop may not be for you. Having one small 3 axis machine in your garage probably won't net you what your current income as an employee and you sure as hell won't have benefits.
30 years experience, you might do well in the prototype, tooling and fixture field, where your pay is based more on your accumulated knowledge rather than a production machines hourly rate. So how do you bill, well that depends on how good you are. If you can design a fixture 3X faster than the other guy and it's as good or better, then you can bill 3X his rate. Don't know where you live or what your competition is doing as a general rule I would guess \$90-\$120+ hr for design/concept, \$45-\$60 hour prototyping machining on 3 axis Haas.
For prototype I wouldn't quote by hour, quote by day unless you are a very good estimator. Most people don't know or take into consideration is what all is involved to sell your service, plan, buy, setup and make the prototype, inspect, document and ship. How fast can you really throughput that simple prototype part where machining cycle time is 1 hour? Order entry, material purchase, programming, setup, inspection report creation, inspection, documentation (certifications), shipping, billing, ect., that hour just took a full day (or more).
If you are really going to do this then you more than likely need to invest in your operation so you can service the customers you are going for. Worst thing you can do is bid a job, promise delivery and miss quality or delivery due to a machine/tooling/capacity shortage or issue.
Some of the best business decisions you can make is turning work down. If it doesn't make sense or cents, turn it down, learn how to say no. Some companies are very good at dangling work out for unsuspecting new suppliers to drive prices down where the followup work will never come (because it never existed). If a company is taking work from one supplier to give to you, make damn sure you take another close look at the part/print, you may not be seeing something, something that has nothing to do with the other supplier and everything to do with the part.
Tom
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Snipped for context:

Worst thing you can do is bid a job, promise delivery and

The one biggest issue you will face in prototype work is this, the time adds up quickly, and one or two phone calls, one or two salespeople / customers stopping by, you now have 3 days into that 1 hour job, plus all the time and tooling actually required in really making the part.
Cover all your bases, basicaly, a decent excel spreadsheet will cover everything you need to consider, but, know that you will be adding new features to the file as you go along, kind of a work in progress.
I have one I have put together, it calcs direct costs, material, tooling, saw cutting, plating, heat treating, grinding, etc. estimated programming time@rate, and estimated run time "under the spindle", with percentages added for a supposed profit.
Surprisingly,the darned thing is pretty accurate, minus the distractions mentioned above.
(But, I do cheat and run a mock program occaisionally, just for cycle time study)
And, lastly, a dartboard with the numbers replaced with various cost added issues would be a good addition to the "office", you get 3 darts, add that to the job, then hope you got the darts right. :)