To reduce the cost of manufacturing systems, many studies of cost minimization have been performed. Since tolerance design significantly affects the manufacturers’ cost, the optimization of cost-tolerance allocation will be an important issue for reducing these costs. Costs incurred in a product life-cycle include manufacturing cost and quality loss. However, most cost-tolerance optimization models frequently ignore the concept of quality loss and may not lead to an accurate analysis of the tolerance. Until now, process capability analysis has been the tool used to evaluate the adequacy of a production tool in meeting a quality target. Hence, the concept of process capability analysis should be included into the cost-tolerance optimization model. In this study, a flexible cost-tolerance optimization model will be constructed by integrating the process capability index into the product life-cycle cost function. The constructed cost-tolerance optimization model simultaneously considers the manufacturing cost of the components, the process capability of the manufacturing operations, and the quality loss of products. The decision-maker can apply the proposed cost-tolerance optimization model to determine a reasonable tolerance with minimum total cost including consideration of the process capability .