What is a cost breakdown analysis?

A cost breakdown analysis refers to the process of identifying the factors that determine the price of a product. It’s also known as should-cost analysis, as it essentially pinpoints all the elements within a product’s price, resulting in what the product should cost.

A cost breakdown analysis is a four-step process comprising data collection, systematic expansion of the cost elements, determination of the cost drivers and the development of insights.

This analysis is critical to supplier development because the knowledge gathered during the process enables enterprises to identify a supplier’s strengths and weaknesses.