Set one comparable decision contract
Record these assumptions before calculating
- A unit flow that reconciles started units to accepted, scrapped and in-process units. (not complete)
- First-pass-good and reworked-good output kept separate. (not complete)
- Material, labour and inspection added by rework. (not complete)
- Actual recovery proceeds or a labelled recovery scenario. (not complete)
- A comparable baseline run with the same product and acceptance rule. (not complete)
actual cost per good unit = (input material + process labour + rework cost + other conversion cost - recoverable scrap value) ÷ good units
- good units
- Units meeting the defined acceptance point, including successfully reworked units (units per run) — quality and production record
- rework cost
- Additional material, labour, machine and inspection resource consumed by rework (CU per run) — rework routing and cost record
- recoverable scrap value
- Realised or supportable recovery value, not original input cost (CU per run) — disposal or recovery record
Keep one currency, indirect-tax basis, time horizon and cost boundary throughout. Scenario values below are invented currency units (CU), not benchmarks.
Worked example: Scrap, Yield and Rework: The True Unit-Cost Bridge
Invented run: 100 units started, 90 first-pass good, 6 sent to rework, 5 of those recovered, 4 scrapped; 2,400 CU base conversion cost, 180 CU rework and 40 CU scrap recovery.
| Line | Calculation | Result |
|---|---|---|
| Good units | 90 + 5 recovered | 95 units |
| Net run cost | 2,400 + 180 - 40 | 2,540 CU |
| Actual cost per good unit | 2,540 ÷ 95 | 26.74 CU |
| Cost without failures | 2,400 ÷ 100 | 24.00 CU |
| Case | Changed input | Decision result |
|---|---|---|
| No rework recovery | 90 good; 2,400 + 180 - 40 | 28.22 CU/unit |
| Base | 95 good | 26.74 CU/unit |
| Improved first pass | 98 good; 2,450 net cost | 25.00 CU/unit |
Turn the calculation into an operating decision
- Draw the physical unit reconciliation.
- Choose the acceptance point and first-pass definition.
- Attach resource use to original processing and rework separately.
- Credit only supportable scrap recovery.
- Calculate the cost bridge and rank failure modes.
- Test an improvement against the avoidable cost and required investment.
- Adding recovered units without adding their rework cost.
- Crediting scrap at original input cost without real recovery.
- Mixing kilograms, pieces and batches without conversion.
- Dividing by units started.
- Treating inspection cost as fixed when the decision changes it.
Questions to settle before acting
- Is yield the same as first-pass yield?
- No. Final yield can include recovered rework. Track first-pass and final yield separately so rework burden remains visible.
- Where should warranty failures sit?
- Keep post-sale failure in a separate quality-cost line and cohort unless the chosen unit-cost boundary explicitly includes it.
- What is the improvement ceiling?
- The avoidable failure cost is a ceiling before implementation cost, uncertainty and any new failure mode are considered.
Sources and methodology
- Scrap, Yield and Rework: The True Unit-Cost Bridge: calculation boundary — Margin101: Formula, unit, assumption and limitation reference for the primary decision handoff.
- Cost of quality — American Society for Quality: Authoritative quality-cost classification context; no defect or yield benchmark is used.