Sound familiar? This question is asked countless times by a variety of people inside a business – operations accounting, plant accounting, sales and marketing, and even research and development. In most cases the answer is given as one general cost number derived from a universal standard rate and unit of measure within the business. My clients with complex manufacturing processes would tell you that before they can answer this question, they need to ask you a few questions.
Where was it produced?
What plant or what line was the item produced? Different plant and line specific costs can exist when producing the same product.
When was it produced?
Was it part of a full production run, or a small specialty order?
When did it hit inventory? And, is there an aging cost or a layered cost as part of the total cost?
What raw material price was used? And, is it at standard or actual?
Did we use sales price, market price, or some average price to value the raw material?
What accounting methodology or logic is being used to calculate cost?
Does your company use a frozen yearly standard, running three-month actual, up to date current yearly standard, fully absorbed at current capacity, fully absorbed at standard capacity, or some other accounting methodology?
Answering these questions is simplified when you use an enterprise costing system like ImpactECS that allows multiple sets of cost to exist simultaneously for the same finished SKU. Process manufacturing companies need to analyze their costs from multiple perspectives, and visibility to trustworthy costing data before you implement a change gives you the ability to make sound business decisions.
Most manufacturing companies today are challenged with multiple production environments and complex manufacturing processes. This often means that one cost per product is not sufficient for the kind of detailed cost analysis needed to compete successfully. By developing a costing process that includes an enterprise-level costing solution, you’ll have the tools to answer all of these questions and more.