Should-cost analysis builds a cost estimate from first principles: raw material costs, machining time per operation, labor rates, overhead allocation, tooling amortization, and profit margin. Unlike historical pricing or market-based pricing, should-cost asks "what should this actually cost to make?"
Manufacturers use should-cost analysis in two directions. When quoting, it validates that estimated prices cover actual costs with acceptable margins. When purchasing, it challenges supplier pricing by understanding what the component should cost based on its manufacturing requirements.
The accuracy of should-cost analysis depends entirely on the quality of underlying data. Shops with good historical cost data — actual cycle times, actual material yields, actual scrap rates — produce far more accurate should-cost estimates than those relying on textbook feeds and speeds.