Product Costing Can Answer these 4 Questions For Your Food and Beverage Company
Posted on: March 8, 2021 | By: David Kwo | QAD Business Process, QAD Distribution, QAD Financials, QAD Manufacturing
Cost management is essential to any profitable business and should therefore be an ongoing analysis activity for any food and beverage company. Rather than assessing your budget and product costs once a year, continuously compare your actual costs to the standard so that you are constantly looking at results and can begin building next year’s cost model well ahead of time.
Ongoing product costing efforts can help your business to answer the following questions:
What are your overhead cost drivers?
Determining overhead cost drivers and formulating an allocation plan for these costs is a critical element of product costing. A company with multiple product lines will have different distinct cost drivers. Identifying and considering these cost drivers is crucial to creating a wholistic and adaptable costing plan.
What is the cost breakdown?
What are the costs of your direct inputs of production? What are your overhead costs? Breaking down your cost can help you to assess your production efficiency and potential areas for cost cutting. Is one area of production incurring more costs than is necessary? What is the value added of each step in your production process, and how does that change if the price of production components changes?
How do you adapt if the price of a component of production changes?
Say you are producing canned soft drinks, and the price of the aluminum you use for your cans rises from a $1 to $1.50 per can. Or perhaps the aluminum you typically use is not available on the market, and you have to turn to a more costly alternative. To maintain an accurate estimation of your costs, which in turn allows you to assess the profitability of your product, your software has to have the ability to incorporate and analyze price changes of inputs so that you can adjust your budget and cost plan accordingly. Particularly in this pandemic economy, as the supply and prices of many goods are inconsistent and unreliable, the ability to assess and adapt to changes in price and the expected cost of your product is essential to a profitable business. `
Can the product be supplied at a competitive price?
Most importantly, product costing can help you determine whether your product can be supplied at a competitive price. Can you make a profit selling your product while also competing with other similar products on the market? If this is not the case, reviewing your cost breakdown and efficiency analysis can help you determine areas in need of improvement that can help you to cut costs and make your product more profitable and competitive.
How QAD can help you with product costing.
QAD’s cost management module allows you to build diverse what-if costing scenarios and simulations for comparison, helping you to determine the best course of action in light of any circumstances. By using these cost formulation tools for ongoing cost management throughout the operating year, you don’t have to wait until the last minute to start forming next year’s cost model, and you can quickly and adeptly adapt to any costing changes.
Next Steps
If you are interested in learning more about product costing and/or maximizing the use of QAD for cost management, contact us here to find out how we can help you grow your business. You can also email us at info@loganconsulting.com or call (312) 345-8809.