Routing Cost Calculations
• Labor cost per operation
The total labor cost is the combined cost of setting up the operation and running it. Since setup time applies to the whole operation rather than per unit, setup time is divided by the item order quantity, then multiplied by the setup rate.
Labor Cost = (Setup Hrs / Order Quantity * WC Setup Rate) + (Run Hrs per Unit * WC Labor Rate) / Item Yield%
• Labor burden cost per operation
Burden costs apply to both setup and run time. Labor burden is calculated as a rate per labor hour and/or a percentage of total labor. Labor burden percent is most commonly used in a labor-intensive environment. Labor burden rates are commonly used in a high-volume production environment. Both types of burden can be applied—as a rate per hour and/or as a percentage of labor cost.
Labor Burden Rate = [(Setup Hrs / Order Quantity + Run Hrs) * WC Labor Burden Rate] / Item Yield%
Labor Burden Percent = [(Setup Hrs / Order Quantity * WC Setup Rate) + (Run Hrs * WC Labor Rate) * WC Labor Burden%] / Item Yield%
• Machine burden cost per operation
This is calculated based on the number of hours the machine is in use—both while it is being set up and while products are being run.
Machine Burden Cost = (Std. Setup Hrs / Order Quantity * No. of Machines + Std. Run Hrs) * WC Machine Burden Rate / Item Yield%
• This-level labor and burden cost
Labor and burden costs for each operation are simply added.
This Level Labor = Op 10 Labor + Op 20 Labor + ...
This Level Burden = Op 10 Burden + Op 20 Burden + ...