Job costing for custom metal fabricators (free job cost calculator included)

Job costing vs process costing in custom metal fabrication

In metal fabrication, the accounting method you choose should mirror how parts flow through the shop.

Process costing spreads expenses across every identical part coming off the line. That works for mass production, but it hides profit leaks in a job shop where a two-hour brake setup on five parts can make or break the quote. Job costing, on the other hand, tells you exactly what that stair stringer or stainless hopper cost—so you can correct pricing on the next RFQ.

Process costing shines in continuous, high-volume production, for example roll-forming studs or running coil steel through a pickling line, where every unit is virtually identical. Costs for material, labor, and overhead are pooled by department, then averaged across thousands of pieces.

For project-based metal shops, adopting process costing can hide margin leaks:

🔴 A two-hour press-brake setup on a five-part run gets averaged away

🔴 Premium material on one order inflates “average” sheet cost for every order that day

🔴 Variances surface only at month-end, long after you’ve shipped—and possibly lost money

That’s why job costing is the go-to framework for custom metal fabricators. Tracking each traveler’s material drops, accurately reported labor minutes, and machine-hour overhead tells you exactly what that architectural railing really cost. Knowing these numbers, you can confidently tweak rates, optimize quotes, and protect cash flow on the next RFQ.

How to do job costing

To calculate job costing you need to add up direct material, direct labor, and applied overhead—in other words, use this formula: Total job cost = Direct material + Direct labor + Applied overhead. Capturing each of these components precisely keeps your prices realistic, safeguards margins, and arms you with solid data for every financial decision you make.

Step 1: Define direct costs (material and labor)

Accurate direct costs are the backbone of any reliable job costing system. If you miss a kilo of sheet or a half-hour of weld time, the most sophisticated job cost calculator or software will still spit out the wrong price.

Direct costs fall into two buckets:

1️⃣ Material – everything you buy, cut, bend, weld, or grind away

2️⃣ Direct labor – the productive hours your operators spend turning raw sheet into finished parts

Material: price it like a trader, track it like a banker

Raw stock is a volatile commodity, so treat it the way traders do: quote today’s price, hedge for scrap, and debit every usable drop to the job that created it. Steel, aluminum, and stainless typically eat 40-60% of a small fab shop’s sell price. One outdated price list can turn yesterday’s profitable quote into today’s loss leader.

How to calculate the cost of direct materials used?

To accurately calculate the material cost, you’ll need to follow this formula:

Raw material cost = volume × density × cost/kg

1️⃣ Pull live price per kg or per sheet from your supplier or service-center portal

2️⃣ Compute part volume × density to get theoretical weight

3️⃣ Add scrap factor (2-7% common for lasers)

4️⃣ Subtract value of usable drops/remnants*

5️⃣ Multiply net weight × live €/kg

*☝️ Job costing demands you track those remnants, not just toss them on a rack.

Calculating the cost of direct materials used example

Scenario: You’re building a stainless wash-down enclosure (one-off). The nest calls for two full sheets of 304 SS, each measuring 1219 mm × 3048 mm with a thickness of 1.905 mm (14 ga).

That €614.90 is the exact material charge you feed into the calculator. The next estimator can apply its value to a future job and keep your steel costs honest.

Labor: pay what it really costs, track what it really takes

Your shop’s skill is its secret sauce that adds the most value in a project, but traditional quotes often underrate them. Operators do more than run equipment: they set up tooling, attend toolbox talks, and document quality. Your labor rate must capture all of that.

Government stats show the average U.S. manufacturing shop pays 29–31% extra on top of wages for payroll tax, insurance, PTO, and training. Ignoring burden in job costing is like pricing steel without factoring freight.

To make sure you get the correct cost for labor, you have to factor in:

Wage – hourly or annual, per department

Labor burden – payroll tax, insurance, PTO, training, small-tool allowance

Productive hours – total clocked hours minus breaks, meetings, maintenance

How to calculate the cost of direct labor?

To accurately calculate the material cost, you’ll need to follow this formula:

Hourly labor = Wage/hr + (wage/hr × burden €/hr)

Direct labor: Hourly labor × Productive Hours

Calculating the cost of direct labor example

☝️ How EZIIL tracks labor hours: The operator reports setup start, production start, production stop, and tear-down in EZIIL mobile app. EZIIL logs every interval, subtracts breaks automatically, and pushes the minutes straight into the job ledger. Zero manual entry, zero forgotten hours.

Example labor and material cost calculation summary

This makes €614.90 for material and €307.45 for labor. We can later feed it into the job cost calculator. But before that, we need to move on to Step 2: allocating overhead.

Step 2: Capture overhead without guessing

You’ve nailed material and labor, but your job costing is still half-blind until every euro of overhead finds a home. Rent, machine leases, cutting gases, shop Wi-Fi. These “invisible” costs can run 20–35% of sales in a custom fab shop. Mis-allocate them and your quotes swing from too high to dangerously low.

Know your overhead buckets

Firstly, you need to map every euro that isn’t a sheet, weld, or clocked labor hour. In job costing for custom metal fabrication, these non-production expenses fall into three “buckets”—fixed, variable, and semi-variable overhead. Sorting costs correctly keeps your applied-overhead figure realistic and prevents you from over-pricing simple jobs or, worse, under-charging complex ones.

Choose a fair allocation base

Capturing overhead is only half the battle; you still have to spread it across jobs in a way that mirrors how your shop actually works. That’s where an allocation base comes in. Whether you pick direct labor hours, machine hours, or a lean, activity-based metric, the goal is the same: make sure each project carries its fair share of overhead so your job-order costing stays both competitive and profitable.

Direct labour hours – best when people drive the process (welding, fitting).

Machine hours – ideal for laser-heavy or robot-weld cells.

Activity-based costing (ABC) – traces costs to specific activities for the most accuracy, but requires more data

Pick one base per fiscal year; changing mid-stream scrambles variance reports.

How to calculate overhead rate

Once the buckets are sorted and the allocation base is chosen, the math is straightforward. Calculating an accurate overhead rate turns random cost data into a single €/hour (or €/labor-hour) figure you can drop straight into your shop-rate formula. Get this number right and every quote you send reflects the real cost of keeping the lights on, safeguarding margins and sharpening pricing in one move.

In order to calculate overhead rate, use the following formula:

Overhead rate (€/allocation unit)=Total overhead €/Total allocation base

Overhead rate calculation example for a small metal shop

Before we plug numbers into the shop-rate formula, let’s walk through a realistic overhead snapshot for a 10-person fab shop: rent, machine leases, indirect consumables, the whole lot.

*Allocation base selected: total productive machine hours = 5000 hr

Overhead rate = 180 000€/5 000 hr=36€/machine-hour

Feed €36/hr into the “Overhead €/hr” field of your job cost calculator and your quotes will absorb the true carrying cost of the shop.

Review and adjust quarterly

Price spikes in steel gases or a new press-brake lease can throw the rate off fast. Schedule a 15-minute “overhead check” every quarter:

1️⃣ Export last 3-month overhead ledger.

2️⃣ Update totals in EZIIL; new rate propagates across open quotes.

3️⃣ Re-run variance reports—laser and weld cells often change at different speeds.

Step 3: Calculate your shop rate (and when to mark it up)

A crystal-clear shop rate converts all those material, labor, and overhead figures you gathered during job costing into one actionable €/hour number. That’s the baseline price you must charge for every productive hour to keep the lights on.

To calculate your shop rate, use the following formula:

Shop rate €/hr = Direct labor €/hr + Fixed overhead €/hr + Variable overhead €/hr

Breakdown of the formula

*Ranges pulled from industry surveys and ERP datasets for sub-€15 m fabrication shops

Worked example – Laser-cutting cell

In the next example we’ll take the actual labor, overhead, and assist-gas costs from a laser cell and show you exactly how they roll up into an €82/hour baseline rate you can copy—or benchmark against your own.

We’ve already calculated:

✅ Direct labor (operator + burden): €32.50/hr

✅ Overhead rate (Step 2 result): €36/hr

✅ Variable overhead (assist gas, optics wear): €12/hr

✅ Laser shop rate = 32.50 + 36 + 12 = €80.50/hr

Round to €82/hr for quoting simplicity.

☝️Calculate separate rates for press-brake, weld, and paint cells if their overhead profiles differ.

Markup vs margin: Know your weapon

Markup and margin measure profitability from two different angles. Mix them up and you’ll either overprice routine work or leave euros on the table for rush jobs. The below table helps you decide which metric to lean on when quoting or reviewing monthly performance.

☝️ As a rule of thumb, small custom metal fabrication shops target 30–35% gross margin on one-off projects. Prototype, rush, or high-risk jobs justify an extra 5-10% buffer.

When to Mark Up (or down)

Even a perfectly calculated shop rate isn’t carved in stainless. Material spikes, capacity crunches, and strategic foot-in-the-door projects all warrant dynamic pricing. Here’s a quick playbook on recognizing those moments—and adjusting your markup or discount so you win the right work without torching margin.

Material volatility – Stainless jumped 7% last quarter; add cushion

Complex setups – Two-hour brake change-overs on a five-piece run deserve premium recovery

Capacity squeeze – If the laser queue is full for two weeks, bump the rate to favor your best customers

Strategic foot-in-door – Drop margin for a first-time OEM with long-term volume potential

Step 4: Build accurate estimates

With material, labor, and overhead locked down, the final piece of job costing is predicting how long every operation will take. The more disciplined your estimate, the less “price creep” you need to pad into quotes, and the faster your job cost calculation pays off in real-world margin.

Below are field-proven formulas (and quick examples) for the four operations most custom metal fabricators run every day.

Estimating laser/plasma cutting rate formula:

Cut Time (min) = (Cut Length mm ÷ Feed-rate mm/min) + (Pierces × Pierce Time sec ÷ 60)

Example – 4 mm mild steel plate

Cut length: 18 000 mm

Feed-rate: 3 600 mm/min

Pierces: 42 pcs @ 0.6 sec each

(18 000 ÷ 3 600)min + (42 × 0.6 ÷ 60) min = 5 min + 0.42 min ≈ 5.4 min

If your laser shop rate is €82/hr, process cost = €7.38

Estimating press-brake forming rate formula:

Form time (min) = ((Bends × Std-sec) + (Flips × Flip-sec)) ÷ 60

Example – Box chassis, 8 bends/3 flips

Typical standards:

Std-sec per bend: 4–6s

Flip-sec (rotating/realigning part): 3–4s

((8 × 5) + (3 × 3)) ÷ 60 = 0.83 min

Add setup time (say, 12 min) for total forming = 12.83 min

Cost at €75/hr brake rate = €16.04

Estimating welding rate formula:

Weld time(min) = (Bead length mm ÷ Travel speed mm/min) + Setup min

Example – 1 200 mm of 4 mm fillet, manual MIG

Travel speed: 220 mm/min

Setup + tack cycle: 8 min

(1 200 ÷ 220) + 8 = 5.45 + 8 ≈ 13.5 min

At €68/hr welding rate, op cost ≈ €15.30

Track actual cost vs estimated cost

Job costing doesn’t stop when the traveler hits the completed rack, you need a tight feedback loop that compares actual costs and project completion time to estimated numbers and feeds those insights straight back into your job cost calculator and quoting rules.

☝️ You can automatically capture and analyze actual vs estimated costs of every project with EZIIL Starter.

Spotting bottlenecks and correcting fast

Measuring actual vs estimated helps you spot leaks in your projects. If you notice your actuals don’t match your estimates, it could be due to one of the following reasons:

Common job costing mistakes in custom metal fabrication

❌ Treating skilled labor as “variable”: Welders and brake specialists aren’t a faucet you turn on/off; swapping full wages for temp labor during slow weeks rarely works.

✅ How to fix: Classify core operators as fixed in overhead, then manage capacity with smarter scheduling, not layoffs.

❌ Using last quarter’s steel price: Commodity spikes or drops can invalidate a quote within hours, forcing you to absorb the difference—or re-negotiate awkwardly.

✅ How to fix: Pull live material prices (or refresh weekly at minimum); automate updates via your supplier’s API.

❌ Ignoring setup time on short runs: A two-hour brake setup spread over five prototypes adds €24 per part, enough to erase margin.

✅ How to fix: Barcode every setup start/stop and include default setup minutes in your quoting formula.

❌ One-size-fits-all overhead rate: Laser gases and robot-weld power cost far more per hour than a hand-drill station, skewing quotes.

✅ How to fix: Calculate overhead by department (laser, brake, weld) and store multiple shop rates.

❌ Spreadsheet sprawl: “JobCost_v7_FINAL.xlsx” is never the final version; version chaos kills trust in numbers.

✅ How to fix: Centralize costing in an specialized metal fabrication tool or cloud calculator, with formula updates locked behind permissions.

❌ No variance review: When you never compare actual vs. estimate, bad quotes repeat forever.

✅ How to fix: Hold a 15-minute red/yellow/green variance huddle every Friday; adjust standards immediately.

❌ Untracked consumables: Abrasive discs, anti-spatter, and tips look small per unit but add thousands per year.

✅ How to fix: Log bulk consumables to variable overhead and apply a cost per machine-hour.

❌ Mixing up markup and margin: A 20% markup delivers only a 17% margin—often below target.

✅ How to fix: Train estimators; show both figures side-by-side in your job-cost calculator UI.