My numbers will sound crazy to some people, but let me explain the model I use.
EVERYTHING to me is a material cost, except for labor. I don't use a labor cost model because I don't get paid per hour, I get paid on the sale of a finished product. Labor is baked into my SELL Price. The better I get, the less willing I am to work for cheap. I drive my prices up to drive up profit. It has no effect on my cost to make the knife. If the market won't pay me what I think my labor is worth, then I have to lower prices. This means lower profit, but again, cost hasn't changed.
I figure my cost closer to $70 - $100 per knife (depending on the model) and then I have a $30 cost for a leather sheath, and $5 cost for Kydex sheath since mine are very simple.
Exotic materials are extra. If I am putting a $50 block of wood on it for a handle, then obviously I raise the SELL PRICE to cover that rather than adjusting my cost baseline. Now, if a $50 handle is standard then by all means, that's your cost.
COST vs Profit: The market determines what your knife sells for. Your cost to make it is what determines your profit. If I acquire new skills or machinery that saves me time, then good for me. That's profit. But my material cost to make the knife doesn't go down.
I figure my base-cost this way: What would it cost me to make one knife today if I had no materials or supplies and had to acquire them? Then go see what it costs to buy those things.
Finished materials:
blade steel
wood for handle
pins
epoxy
Hard Costs (add-ons)
tooling / breakage / replacement ($5 per knife)
visors, respirator filters, etc ($1 per knife)
Heat Treating ($15 per knife) I send my blanks out. (I beat this cost regularly by working in batches and getting a discount, but that is my savings for being smart.)
consumables:
Abrasive belts
Abrasive sheets
epoxy
kydex
leather
Electricity
Miscellaneous:
rivets
thread
vinyl gloves
stir sticks
epoxy cups
For things that you buy in a package quantity, such as epoxy: I estimate.
Epoxy: I use 5ml epoxy + 5ml hardener per knife (ON AVERAGE). I buy it at a given volume. Divide by average usage, then ROUND UP to the next whole dollar. For GFlex650, a 32oz kit = $60 (with shipping)
32oz = 946ml
946 ml / 10 ml = 94 knives.
$60 divided by 94 knives = 64 cents per knife. = ROUND UP to $1 per knife epoxy cost.
Pins: a 12 inch mosaic pin is $50. I use them in 1-1/4" lengths.
12 inches divided by 1.25 inches = 9.6 pins, therefore, I get 9 pins from one $50 rod.
The extra .6 of a pin becomes sawdust or trimmings, but I still had to pay for it. So my cost is: $50 divided by 9 pins = $5.55 per pin. ROUND UP to $6 per pin
I round up always. Why? This is how I build the cost of goods shipping into my supplies rather than track shipping costs every time I buy something. If I pick up a bag of rivets that I will use for six months, I have no idea what I paid for shipping because I ordered it with 20 other items. Rounding up to the next whole dollar fudges this cost in. (This shipping refers to when I buy materials, not when I ship the knife. Delivery shipping is paid by the customer and added to the finished price of the knife.)
Now I know what it costs to buy materials to make a knife.
I don't use up a whole belt? Hooray for me.
I get a great deal on wood by buying quantity? Hooray for me.
I get smart about ordering things so that I get the most product with the least amount of shipping? Hooray for me.
These savings mean that my profit margin just went up, but I don't adjust my cost. My cost is an AVERAGE BASE LINE. If I can beat my own cost, hooray for me. This isn't McDonald's. I don't know my actual cost down to the last pickle. I know my AVERAGE cost and I try to be smart about beating it when I can. Sometimes I win, sometimes I lose, but ON AVERAGE I can forecast what it costs me to buy materials to keep making knives. The more "hooray for me" savings I earn, the more cash sits in the kitty for things I didn't budget for or tools I want to buy. -Or covers the loss on materials I wasted on a botched project, or whatever. There is no benefit to calculating the actual cost for every knife I make. It's irrelevant because nobody is paying me based on cost. I don't charge based on cost. My cost is for my own benefit to keep track of how I purchase my raw materials.
Tools, wear and tear, etc, is a line item that I build into the cost. I don't track it because I buy these on an as-needed basis. But they are real costs and you need to have some amount of money baked into your sales price to cover these things. $5 per knife seems reasonable. It's probably low, but my volume isn't high enough to know. If I made folders and used up a lot of specialty tooling, then certainly I'd have a much better numbers. As it stands, this is where I am. I'm a hobbyist, so my ultimate goal is to have enough in the knife account to stop stealing from the family finances. I toe that line, and still sometimes cross it. I've gotten to the point where sometimes I'm proud to tell my wife that "knives paid for this" when the kids get a treat. For a long time it went the other way... it was me keeping the knife supplies coming by dipping into the family money.