A costing checklist can be an invaluable tool in controlling costs and understanding when to increase or lower prices. When you have to make financial decisions, you need to understand all the costs that go into your product. In addition to inventory and operations, product costs decisions affect sales, personnel and marketing budgets as well.
MLA has fractional CFOs with experience and expertise in product costing. We serve companies across the nation from our offices in Southwest Ohio. MLA provides financial services from bookkeeping up through mergers and acquisitions, and solutions including market segmentation and supply chain management. Our team brings financial expertise that is broad and deep.
If you are on a cost accounting system, you already have some standard costing information in place. If this system is set up correctly, you should be able to say what it costs to manufacture your products.
But, because manufacturing is not as precise as standard costing implies. The differences that affect product costs should be tracked as variances to standard processes and can normally be applied as an adjustment to the costs.
A Simple Costing Checklist
This will give you a good approximation of the cost of each product. Give yourself a 10% variance as you refine your system.
To continue to refine your costing analysis, you need to:
The primary benefit of costing analysis is ensuring your business can operate at a good profit margin. This allows you to plan for future expansion and create appropriate incentives for your sales and operations team.
It can also help you to decide if you want to sell a product below actual cost for a period of time. This could be an effective strategy when entering a new market, or when matching prices to a competitor.
Another reason to sell below cost would be you have a very specialized labor force. The cost of laying off and rehiring that labor might be greater than continuing to manufacture at a loss. Having accurate costing data can help you know when, and how long you can sell a product at below cost.
Selling a product below cost is an aggressive strategy that should only be undertaken if you have a good understanding of your costs, and effective controls on your financial and production systems. Working with a fractional CFO experienced costing like those at MLA can be the thing that gives you an edge on your completion.
That said, many companies sell products at a loss, or at unsustainable margins because they do not properly understand the true cost of those products. Don’t wait until a competitor shows you your weakness. Instead, let MLA help you build your strength.
A variety of checklist templates are available online. Here is one that gives you the process in 10 steps.