Keeping track of actual costs is vital for ensuring profitability, especially in industries like food processing where ingredient prices can be volatile. MRPeasy, manufacturing software specialist, demystifies actual cost tracking and explains how leveraging the right software can make all the difference.
As opposed to standard costs that are forecasted ahead of time to plan financials, actual costs are the real costs incurred during production. These are recorded after the fact and can vary from the estimated standard costs due to ingredient price fluctuations, production inefficiencies, or changes in overhead costs such as utilities. For a food manufacturer, understanding actual costs is critical for pricing products, finding financial sinkholes and ensuring profitability.
Tracking actual costs in spreadsheets
Actual costing in spreadsheets involves meticulously recording the costs of materials, labour and overheads, and tying these to specific products, batches and orders. This process can be highly complex and gets even more complicated as variable expenses fluctuate and a product portfolio grows.
It requires structured spreadsheets that capture the cost factors for each product batch. Calculating labour and overhead costs for a batch, based on the hours put into the production run, is straightforward. However, the complicated aspect of actual costing is associating each product batch with specific ingredient lots and their respective prices.
To effectively manage this complexity, each ingredient lot used in a product batch must be recorded with precise details about the quantity used and the price paid. This detail is crucial because price fluctuations in raw materials can significantly affect the overall cost of production.
For example, if a batch of bread uses flour from two different lots purchased at different times at different prices, the cost calculation must accurately reflect the proportion of flour used from each lot to determine the true cost of the bread.
This level of detail in tracking is not just about financial accuracy; it also supports operational decisions such as determining the most cost-effective ingredient lots to use or identifying potential cost savings by switching suppliers. Furthermore, in case of quality issues, knowing exactly which products contained contaminated ingredient lots can be critical for effective response strategies, including targeted product recalls.
However, maintaining such detailed records in a spreadsheet can become unwieldy and error-prone as the volume of data grows. Spreadsheets lack the dynamic capabilities required for real-time updates and integration with other business systems, such as inventory management and procurement, which are essential for modern manufacturers.
Using manufacturing software for actual costing
Growing food manufacturers need specialised software that would enable full traceability and integrate all critical aspects of their operation. Here, manufacturing resource planning software such as MRPeasy stands out. Unlike many other systems, MRPeasy is a manufacturing-centric solution that caters specifically to the needs of growing manufacturers. This includes cost-tracking capabilities that are often missing from other systems.
From ingredient suppliers through production to the customer, modern MRP software helps manufacturers record each direct and indirect cost, material handling transaction, inspection, and other events, helping company’s achieve full traceability as well as transparency. The software automates much of the data entry necessary for maintaining records and provides valuable reports to make impactful business decisions.
“We are more profitable now because we know exactly what it costs us to make our products, and we can increase or decrease our prices as we go along,” says Karen Addenbrook, Sales Manager at Tait Farm Foods, an MRPeasy client since 2022.
In addition, food manufacturers can use MRPeasy to:
- Manage product recipes
- Get complete visibility into their inventory
- Quickly forecast material requirements
- Automatically schedule production
- Track expiry dates
