1. Start with direct materials
List the material actually consumed by the job, including quantity and unit cost. Where offcuts or normal waste are significant, decide whether the calculation should include an allowance rather than assuming every purchased unit becomes saleable product.
Use the same material definitions across estimates and production so later comparisons are meaningful.
2. Add machine or production time
If machinery is a meaningful cost driver, assign an hourly or time-based operating rate and multiply it by the expected production time.
The rate can represent the costing method your business chooses, but it should be applied consistently. A machine that runs for two hours should not disappear from the calculation simply because electricity is paid monthly.
3. Include labour separately
Calculate the labour time required and apply the relevant labour cost assumption. Separating labour from markup helps management see whether jobs are expensive because of material, machine time or manual work.
For repeat jobs, compare estimated labour with actual experience and adjust the standard when the estimate is consistently wrong.
4. Add sundries and operations
Packaging, adhesives, consumables, finishing, outsourced work and other small items can materially affect margin when ignored across many jobs.
Use categories that are practical enough for staff to maintain. A costing model that is theoretically perfect but too complicated to use will quickly be bypassed.
5. Calculate total cost before markup
Add materials, machine or operation cost, labour and sundries to establish the job cost. Only then apply the business's chosen markup or margin method to determine the selling price.
Keep cost and markup separate so managers can change commercial pricing without losing sight of the underlying production cost.
6. Review estimates against completed jobs
A costing system becomes more useful over time when the business compares assumptions with real production experience. Repeated overruns can reveal underestimated setup time, machine speed, labour or material waste.
Use those findings to improve future quotations rather than treating each job as an isolated calculation.