Determine the cost of each item

This is a break-out article from Help: The Market is Shifting


Time was when food manufacturers had direct knowledge of the products they made on a daily basis and managed their inventories personally. Profitability could be manipulated by an owner or manager based on histories and trends without specifically identifying the profitability of individual product lines. Labor, as compared to food costs, would typically yield more impact and flexibility, and demand more attention.

Today, the cost of producing individual products must be known.  One very profitable baker I knew over the years used to declare one reason for knowing unit cost as “to keep from creating monsters” when commenting on making very popular products everyone wants that one cannot afford to make.

The good news is that if we know the cost of our ingredients and the processes by which the products we are producing are created, we know how to quickly figure out what we are spending to create our products. While good costing software is a more efficient way of generating and tracking the unit costs, we can also introduce a template that give a visual example of the age old method for determining unit cost of a variety of products by process including packaging.

Different companies will view their bookkeeping differently. Some will choose to view the unit cost as just ingredients plus labor divided into units. Others will choose to view the unit cost as packaged and including shared overhead from the overall business including everything right down to cost of insurance. However, one cannot make decisions on which products to promote and which to fade out, or whether a new customer request is worth entertaining, unless we can see the bottom line in real time.

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(0) Comments • Permalink • 11 20 2008

• Dan Ettling
• Photo by: Kurt Nordstrom

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