How to track actual costs as a growing manufacturer?

Keeping track of your actual costs is vital for ensuring profitability, especially in industries where material prices can be volatile. Here is how to track your actual production costs.

Tracking actual costs in spreadsheets

Actual costing in spreadsheets involves meticulously tracking every expense related to the production of goods, including the costs of materials, labour, and overheads, and tying these to specific products, batches, and orders.

The process involves setting up structured spreadsheets that capture all relevant cost factors for each product batch. Calculating labour and overhead costs for a batch, based on the hours put into the production run, can be quite straightforward. However, one of the most complicated aspects 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, the price paid per unit, and the supplier. However, maintaining such detailed records in a spreadsheet can become unwieldy and error-prone as the volume of data grows. This is where the limitations of spreadsheets become evident.

Using manufacturing software for actual costing

Companies that are just starting and are producing goods with few people and few ingredients usually try to handle cost tracking using a combination of spreadsheets and accounting software. More serious businesses, however, need to keep an eye on hundreds of moving parts at once. Tracking dozens of materials coming in from various suppliers with varying prices, recording which material lots were used in specific products, and gathering shop floor reports to check production run times – it’s already enough to make your head spin.

That is why growing manufacturers need specialised software that would enable full traceability and integrate all critical aspects of their operation. Here, manufacturing resource planning or MRP software stands out from other types of solutions such as those specialising in accounting or inventory management. Unlike other types of business management systems, MRP is a manufacturing-centric solution that caters specifically to the needs of growing manufacturers. This includes manufacturing cost tracking capabilities often missing from other systems.

Following the journey of a product from ingredient suppliers through production to the customer, modern MRP software helps you record each direct and indirect cost, material handling transaction, inspection, and various 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 meticulous records and provides you with an array of useful reports that help you make impactful business decisions. Moreover, integrating the software with your accounting software automates the exchange of information between the two, making record reconciliation a breeze.

In addition, manufacturers can use MRP software to:

●          Manage and develop bills of materials (BOMs)

●          Get complete visibility into their inventory

●          Quickly forecast material requirements

●          Automatically schedule and re-schedule production

●          Track quality inspections, identify the root causes of issues, and organise callbacks.

To learn more about MRP software, visit: www.mrpeasy.com