Engineered cost
Engineered cost: a cost with a clear, measurable input-output relationship, such as materials per unit, so its budget can be derived directly from planned output volume.
See it move
A metal fabricator knows each bracket needs 1.5kg of steel costing €3.20 per kilogram. Given a budgeted output of 4,000 brackets, the materials cost is engineered mechanically: 4,000 × 1.5kg × €3.20 = €19,200. No management judgement is involved; the figure falls directly out of a proven technical relationship between input and output, unlike a committed or discretionary cost.
The formula
Variables
- Engineered cost for the period (€)
- Quantity of input needed per unit of output (input units per output unit)
- Price per unit of input (€)
- Planned output volume (units)
Budgets an engineered cost mechanically from a known technical input-output relationship and a planned production volume.
Check yourself
A print shop knows each brochure requires exactly 40 grams of paper costing €2.50 per kilogram. It plans to print 12,500 brochures next month. Which cost is being engineered here, and what is the budgeted amount?