To cost a machined part, you add up five things: raw material (with a scrap allowance), setup time amortized over the lot, cycle time at each operation's machine-hour rate, any outside processing, and overhead. Then you apply margin to reach a price. That's the whole formula. Shops rarely go wrong on the math. They go wrong by skipping steps or blending numbers that should stay separate. Below is the full machine shop costing calculation worked on a real bracket, operation by operation, with a cost-breakdown table you can copy.

The five inputs every machined-part cost needs

Before you touch a calculator, you need:

Material. The raw stock consumed per part, priced by weight or length, plus a realistic scrap allowance.
Setup time and a labor rate. The fixed time to prepare each work center before the first good part, independent of lot size.
Run time and a machine-hour rate. The per-piece cycle time at each operation, priced against that specific work center's fully loaded rate.
Outside processing. Anything sent out (anodize, heat treat, plating) priced at the vendor's quote.
Overhead and margin. The shop-level costs a machine-hour rate doesn't capture, plus the profit you need to stay in business.

Skip any one of these and you'll systematically over- or under-price every job that doesn't look exactly like your last one.

Step 1: Start from the routing, not the drawing

You can't cost a part from a drawing alone. You cost the routing: the specific sequence of operations, work centers, and standard times it takes to build it. If that routing doesn't exist yet, or exists only in an estimator's head, build it first. We cover how in Setting up routings: work centers, operations, and standard times. Every number below comes straight from a routing built that way.

The part is BRK-200, a machined aluminum bracket, the same subassembly from our bill of materials walkthrough, quoted for a lot of 50. Its routing has three operations: saw the blank, mill the features on a 3-axis VMC, and deburr/inspect.

Step 2: Price the material

BRK-200 consumes 0.8 lb of 6061-T6 aluminum bar stock per part. At $4.25/lb, raw material cost is:

0.8 lb × $4.25/lb = $3.40

Real cutting always loses some material to kerf, tool breakage, and the occasional scrapped part. Add a 5% scrap allowance:

$3.40 × 1.05 = $3.57 per part

Skip the scrap allowance and you're quoting a lab-perfect process that doesn't exist on your shop floor.

Step 3: Amortize setup cost over the lot

Setup time is spent once per job, not once per part. A full setup to zero-in a fixture and qualify the first article costs the same whether you're running 5 parts or 500. You divide it across the lot.

Op	Work center	Rate	Setup time	Setup cost (lot of 50)	Setup cost/part
10	SAW-01 (bandsaw)	$65/hr	10 min	$10.83	$0.22
20	VMC-03 (3-axis mill)	$95/hr	35 min	$55.42	$1.11
30	BENCH-01 (deburr/inspect)	$45/hr	0 min	$0.00	$0.00
Total				$66.25	$1.33

The VMC setup dwarfs the others, which is typical. Milling setups (fixturing, tool offsets, first-article verification) usually carry most of a job's total setup cost, which is why lot size matters so much for machined parts (more on that below).

Step 4: Cost cycle time with a machine-hour rate

This is the step people botch most: pricing every machine at one flat "shop rate." A manual bandsaw and a 3-axis CNC mill do not cost the same amount to run per hour. The mill carries far more depreciation, tooling wear, and power draw. Each work center needs its own machine-hour rate: a blended rate covering machine depreciation, tooling, consumables, facility overhead allocated to that machine, and the loaded labor cost of the operator while it's running. If you haven't built these rates yet, our machine-hour rate calculator and guide walks through deriving one correctly instead of guessing.

With rates in hand, cycle cost is run time × rate:

Op	Work center	Rate	Run time/part	Run cost/part
10	SAW-01	$65/hr	1.5 min	$1.63
20	VMC-03	$95/hr	8.4 min	$13.30
30	BENCH-01	$45/hr	2.5 min	$1.88
Total				$16.81

The milling operation alone accounts for nearly 80% of run cost. If you're trying to reduce this part's price, the biggest lever is cutting VMC cycle time, not haggling over the bandsaw rate.

Step 5: Add outside processing

BRK-200 gets anodized after machining. The vendor quotes $1.85 per part for the lot, which you carry straight through as a pass-through direct cost. You need no markup logic at this stage, though some shops add a handling margin on outside processing. That's a legitimate policy choice; stay consistent about it.

Step 6: Roll up direct cost, then apply overhead

Add material, setup, run time, and outside processing:

$3.57 + $1.33 + $16.81 + $1.85 = $23.56 direct cost per part

Your machine-hour rates already absorb the overhead tied directly to running that machine. What they don't capture is general and administrative cost: quoting, quality, sales, facilities not allocated to a specific work center, and administrative labor. Most shops apply this as a percentage of direct cost, commonly 10 to 20% depending on how much is already baked into the machine rates. At 15%:

$23.56 × 0.15 = $3.53

Total cost: $23.56 + $3.53 = $27.09 per part

Step 7: Add margin to reach price

Decide whether you're targeting a margin on price or a markup on cost. They are not the same number, and confusing them quietly erodes profitability. A 35% margin on price means:

Price = Cost ÷ (1 − margin) = $27.09 ÷ 0.65 = $41.68

(A 35% markup on cost, by contrast, would be $27.09 × 1.35 = $36.57, a much lower price for the same "35%." Know which one your accounting uses.)

The full cost breakdown

Cost element	Amount/part
Material (0.8 lb 6061-T6 @ $4.25/lb, + 5% scrap)	$3.57
Setup (amortized over lot of 50)	$1.33
Run time (all three operations)	$16.81
Outside processing (anodize)	$1.85
Direct cost subtotal	$23.56
Overhead (15% of direct cost)	$3.53
Total cost	$27.09
Margin (35% of price)	$14.59
Quoted price per part	$41.68
Lot price (qty 50)	$2,084.00

Why lot size changes the price

Run the same part at a lot of 200 instead of 50. Material, run cost, and outside processing per part don't move. Setup dilutes:

$66.25 total setup ÷ 200 = $0.33/part (down from $1.33)

Direct cost drops to $3.57 + $0.33 + $16.81 + $1.85 = $22.56. Overhead at 15% is $3.38, total cost $25.94, and price at a 35% margin falls to $39.91, about 4% lower, because setup got spread further. If your quoting process doesn't recompute setup allocation at every quantity break, you're either overcharging on large lots or losing money on small ones.

Common mistakes that undercost (or overprice) a job

One blended shop rate for every machine. A $95/hr mill and a $45/hr bench become interchangeable, which overprices simple work and underprices complex work.
Forgetting to amortize setup, or quoting only cycle time. Fine for a 1,000-piece run, ruinous on a 10-piece prototype order.
Mixing up margin-on-price and markup-on-cost without realizing they diverge as the percentage grows.
Letting standard cost go stale after a tooling change, a rate increase, or a routing revision. See BOM revision control for how changes should flow through to cost.
Ignoring real scrap and yield, which understates material cost on every quote until a bad run makes it obvious.

Instant quoting tools vs. owning your costing model

Tools like Paperless Parts and similar CAM-based instant quoting platforms do something useful: they recognize geometry from a 3D model and estimate cycle time automatically, a real advantage for a shop drowning in inbound RFQs that need a same-day turnaround. If quote volume is your bottleneck, that strength is worth taking seriously.

But the underlying math those tools run is what's in this article: material, setup, cycle time at a machine-hour rate, overhead, margin. The question worth asking is whether that resulting quote then lives in the same system that runs the job, so you can reconcile the actual labor and machine time captured on the work order against what you quoted. A quote disconnected from job execution never tells you whether you were right. We cover the full quoting workflow, including how to protect margin from RFQ to accepted quote, in Job shop quoting: RFQ to margin-protected quote.

How Carbon handles machined-part costing

Carbon builds this calculation into the routing and job record instead of a separate spreadsheet:

Per-work-center machine-hour rates, not one blended shop rate, applied automatically to whatever operation a job runs through.
Standard cost from the routing, actual cost from the job. Because Carbon is ERP, MRP, MES, and QMS on one Postgres data model, the same routing that generates a standard cost estimate also captures actual labor and machine time as the work order runs, so you see variance instead of a guess.
Quantity-aware quoting. Setup amortization recalculates automatically at every quantity break instead of a hand-adjusted spreadsheet formula.
Open source and API-first. The full costing and job-cost data model is in the public repo (github.com/crbnos/carbon) and reachable over a REST API (rest.carbon.ms), so you can pull actual-vs-standard cost data into your own reporting instead of being limited to a canned report.

Frequently asked questions

How do you calculate machine shop costing?

Add material cost (with a scrap allowance), setup cost amortized over the lot, run time priced at each operation's machine-hour rate, and any outside processing. That total is your direct cost; apply an overhead percentage and your target margin to reach a price.

What is a machine-hour rate?

A machine-hour rate is the fully loaded cost to run a specific work center for one hour: depreciation, tooling, consumables, facility overhead allocated to that machine, and loaded operator labor. Each work center should have its own rate rather than one shop-wide number.

Should setup cost be spread over the whole lot or charged per part?

Spread it over the lot. Setup happens once per job regardless of quantity, so dividing the total setup cost by the lot size gives an accurate per-part figure that automatically gets cheaper at higher volumes.

What margin should a machine shop target?

There's no universal number; it depends on your overhead structure, market, and risk on the job. The more important discipline is knowing whether your target is margin-on-price or markup-on-cost, since the two produce meaningfully different prices at the same stated percentage.

Why did my quoted price change when the quantity changed?

Because setup cost is fixed per job but spread across a variable number of parts. Material and run-time costs per part stay roughly constant across quantities; setup cost per part drops as lot size grows, which is why unit prices fall on larger orders even though nothing about the process changed.

Price your next job with real numbers

If your quotes live on a spreadsheet that doesn't separate setup from cycle time, or uses one shop rate for every machine, it's worth seeing what routing-driven costing looks like end to end. Try Carbon free for 30 days at https://app.carbon.ms, or read the costing and job data model yourself on GitHub.

How to cost a machined part: a worked example