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. As a food manufacturer, understanding your actual costs is critical for pricing your products, finding financial sinkholes, and ensuring profitability.
Tracking actual costs in spreadsheets
Spreadsheet-based actual costing involves meticulously recording the costs of materials, labor, and overhead, 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 your product portfolio grows.
It requires structured spreadsheets that capture the cost factors for each product batch. Calculating labor 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 were made with 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 specialized 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 manufacturing ERP software helps you record each direct and indirect cost, material handling transaction, inspection, and other events, helping you achieve full traceability as well as transparency in your costs. The software automates much of the data entry necessary for maintaining records and provides you with valuable reports to make impactful business decisions.
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
A real solution for real food manufacturers
For Frozen Garden, a frozen food manufacturer from Indiana, unreliable cost data became a major factor in the decision to find a system that would allow them to automatically recalculate actual costs as ingredient prices changed and to perform detailed cost analysis. Luckily for founder Allyson Straka, she found a system that provided her with everything her company needed: cost control, FDA-compliant traceability, and production efficiency tracking.
“MRPeasy has all the functionality manufacturers from industries such as food or pharma need to comply with FDA regulations and get to the next level of efficiency,” she states.
Similarly, Pennsylvania-based food and beverage manufacturer Tait Farm Foods implemented MRPeasy to achieve traceability and get control over their inventory and costs. With the new software keeping track of everything, Tait Farm Foods has a much better grasp of its costs, which enables them to quickly react whenever there’s a change in ingredient or labor costs.
“We are more profitable now because we know exactly what it costs us to make our products,” says Sales Manager, Karen Addenbrook. “And we can increase or decrease our prices as we go along.”
For more information, visit https://www.mrpeasy.com/.