Meaning
Financial practices distribute the acquisition cost of a plastic injection mold over the total number of parts it is expected to produce. An injection mold amortization represents the per-unit charge added to the piece price of a component to gradually offset the initial capital expenditure. This mechanism allows suppliers to recover their tooling costs from the buying company through the standard purchase order.
Accounting Plan
Under this arrangement, the supplier finances the construction of the mold and is paid back as parts are shipped. The amortization schedule terminates once the agreed volume of parts is reached or the total cost is recovered.
Volume Risk
Suppliers face financial losses if the vehicle program does not reach the forecasted volume, leaving a portion of the tooling cost unrecovered. Contracts usually include reconciliation clauses to address these shortfalls at the end of the program. This protection ensures that the supplier is compensated for the remaining balance.
Cost Allocation
Tooling costs are kept separate from the base material and labor costs in the piece price. Once the amortization period ends, the unit price of the part is reduced by the tooling component. This transition lowers the ongoing acquisition cost for the buyer.
