2 Product Cost Calculation
- Cost for materials. This is an actual budget based on lab fees set aside to buy all the stuff students need to build / test prototypes in Mech 3. It’s typically $1500 per group. This cost arises from a limit on bona fide money sitting in an MAE account. If students spend this to $0, they can’t buy any more stuff.
- Cost to prototype one unit. I describe this one as the cost to build the prototype if participants were not UF students but working out of their garage as an early-stage startup. This cost calculation accounts for the big product cost drivers Mike outlined: 1) Materials, 2) Manufacturing Costs [we have tables students use to price out labor time & machine depreciation for internal manufacture; it is also acceptable to use quotes for outsourced manufacturing, but this cost if often and most students avoid it to keep price down], and 3) Assembly Costs [students use Boothroyd & Dewhurst to estimate assembly time then multiply by the labor rate for an assembler]. I do not ask them to consider additional direct or material costs.
- Cost-per-unit for a small production run. This is the cost to produce a batch of MVPs to be beta tested with early adopters to get user feedback. It considers the same cost drivers as #2 but asks students to also consider benefits of volume / scale – it’s usually cheaper on a per-screw basis to buy 10 screws rather than 1 screw. For this calculation, I also ask students to add a 20% profit margin to move the estimated per-unit cost toward a realistic estimation for the true commercial product cost.
In none of these calculations do I ask students to consider the other costs of truly running a business: Marketing, HR, Legal, IT, Executive/Owner Salaries, Taxes, Facility Costs, etc. While I can see the value in doing that, it is beyond the scope of Mech 3.