Engineering costs for many years have basically been included in the standard burden rate of the shop. There are many situations now in this world where manufacturing is very competitive and technical that the standard burden rate of the shop cannot include all the costs associated with the engineering costs.
Direct Engineering Costs
Direct engineering costs would include things like design work, engineering, prototyping, testing and tooling design work. Many job shops today have become turnkey where they don’t produce just a single small widget which is easy and simple to engineer, cost and manufacture. On the other hand the jobs that manufacturing companies are required to produce can be very extensive including everything from a small box to an entire machine tool made up of of 100’s or even 1000’s of components. The costs associated with doing the initial engineering can be very extensive and rightly so. Many job shops have CNC machinery and during the estimating process to arrive at the most accurate costs they actually program and sometimes even manufacture the prototype.
Indirect Engineering Costs
Indirect engineering costs include computers, software and man power required to assist in manufacturing the product. The costs of these indirect engineering items can be extensive and should be allocated across the job that uses these tools.
MIE Solutions provides software resources to help you manage your direct and indirect labor throughout the product life cycle from quoting and estimating, job costing to invoicing.