Meaning
Single payment made for the specialized activities required to design and prepare a new product for manufacture. These non-recurring engineering costs include tasks like circuit design and the creation of custom tooling. The definition is restricted to development expenses and does not include the variable cost of materials used in mass production.
Project Investment
Expenses in this category do not repeat with every unit produced. High non-recurring engineering charges are often associated with complex silicon designs or custom plastic enclosures that require expensive steel molds.
Financial Structure
Companies often amortize these initial costs over the expected volume of the product to determine the final unit price. If a project has low non-recurring engineering but high unit costs, it may be better suited for low volume niche markets.
Resource Allocation
Engineers and designers spend months developing the technical data package that defines the product before it goes into mass production. Managing non-recurring engineering requires a careful balance between the budget for development and the target performance of the device. This investment is risky because the money is spent before any revenue is generated from sales.
A clear project scope helps prevent these costs from expanding beyond the original estimate. Total development cost is the sum of these one time engineering fees.