Development Expense
Financial budgets for new product introductions distinguish between the price of individual units and the one-time investments required to design them. Non-recurring engineering cost represents the total expenditure for research, design, prototyping, verification and tooling that occurs before mass production begins.
Resource Allocation
Project managers track these expenses to determine the break-even point and the eventual unit cost of a new device. A high non-recurring engineering cost might include the fees for silicon masking, software development, manual assembly or the creation of custom injection molds. Because these costs are paid only once, they are often amortized over the total number of units expected to be sold during the life of the product.
Supplier Quotation
Original design manufacturers often charge this fee separately from the piece price to protect their investment in the design phase. Calculating the non-recurring engineering cost accurately is vital for assessing the feasibility of low-volume projects where the design effort represents a large portion of the total spend.
Technical Risk
Unexpected design changes or failed qualification tests can cause these initial costs to exceed the original budget. Managing the non-recurring engineering cost requires strict control over the design scope and the technical requirements of the project.
