This article presents a multi-objective formulation of a tolerance allocation model for interchangeable assembly of pin and hole to complement the need of small-scale industries where there exists two categories of machines, one for pin production and other for hole production. The two objectives considered in this article are minimum total cost of assembly and minimum clearance variation. The problem is formally defined as the determination of optimal Pareto set of tolerances for pin and hole for minimum total cost and minimum clearance variation of a hole and pin assembly, given the design clearance, the process capability of the machines defined with their standard deviations and the mean diameter of either pin or hole. An iterative search algorithm is proposed to explore the entire decision space and evaluate and obtain the Pareto optimal front. This article also presents how the optimal Pareto front of the model can be utilized by the manufacturer to set the optimal tolerances according to demands of the customers. Besides, the effect of process capabilities of pin and hole manufacturing machines on the optimality is discussed to understand their criticality in decision-making.