Cutting tool management in manufacturing firms constitutes an essential element in production cost optimization. In order to optimize the cutting tool stock level while concurrently minimizing production costs, a cost optimization model which considers machining parameters is required. This inclusive modeling consideration is a major step towards achieving effectiveness of cutting tool management policy in manufacturing systems with stochastic driven policies for tool demand. This paper presents a cost optimization model for cutting tools whose utilization level is assumed to be optimized in respect of the machining parameters. The proposed cost model in this research incorporated the effects of diversified machining costs ranging from operational through machining, shortage, holding, material and ordering costs. The machining of parts was assumed to be a single cutting operation. Holt-Winters forecasting technique was used to create a stochastic demand dataset for a test scenario in the production of a high-end automotive part. Some numerical examples used to validate the developed model were implemented to illustrate the optimal machining and tool inventory conditions. Furthermore, a sensitivity analysis was carried out to study the influence of varying production parameters such as: machine uptime, demand and cutting parameters on the overall production cost. The results showed that a desired low level of tool storage and holding costs were obtained at the optimal stock levels. The machining uptime had a significant influence on the total cost while tool life and cutting feed rate were both identified as the most influential cutting variables on the total cost. Furthermore, the cutting speed rate had a marginal effect on both costs and tool life. Other cost variables such as shortage and tool costs had significantly low effect on the overall cost. The output trend showed that the feed rate is the most significant cutting parameter in the machining operation, hence influencing the cost the most. Also, machine uptime and demand significantly influenced the total production cost.