Product Cost Template - Excel Skills

How to use the Product Costing template

Download the sample or trial version when reviewing these instructions

This template enables users to compile product costings for all the manufactured products that are produced by a business. The product costings are based on the purchase prices that are entered for all bought-in stock items and the bills of material (“recipes”) that are compiled for each manufactured product. The template includes a detailed product cost review sheet, what-if cost calculations for cost analysis purposes and quantity forecast calculations that can be used for requirements planning or stock usage measurement. The unique design of this template enables users to create an integrated costing model for all manufactured products.

The following sheets are included in the template:
StockCode - create unique stock codes for all bought-in and manufactured products on this sheet. The product costs and what-if costs of all stock items are calculated based on the purchase prices of bought-in products that are entered on this sheet and the bills of material that are linked to the manufactured products on the BOM sheet. The forecast quantities are calculated based on the finished product quantities that are entered on the Forecast sheet.
BOM - link each manufactured product to the appropriate stock components on this sheet. All the product costings of manufactured products are calculated based on the components that have been linked to the appropriate product code on this sheet.
Costing - view a detailed product costing for any manufactured product by selecting the appropriate stock code from the list box in cell A4. A comparison between the product costing and the what-if costing is also included on this sheet. Aside from selecting the appropriate stock code, this sheet requires no user input.
Forecast - enter the finished goods quantities that should be used in order to calculate a requirements planning forecast. The calculations on this sheet can be used for requirements planning or stock usage measurement purposes. The bought-in stock quantity forecast that is calculated is included on the StockCode sheet.
Margins - this sheet includes a comprehensive analysis of selling prices, product costs, what-if costs and gross profit amounts and percentages.

Stock Codes

The first step in customizing the template for your business is to create a unique stock code for each stock component and finished (manufactured) product on the StockCode sheet. Stock components can only be linked to a manufactured product if a stock code has been created for the appropriate stock item.

Note: The contents of the StockCode sheet have been included in an Excel table. You can add a new stock code to the sheet by simply entering the appropriate stock code in the first empty cell in column A - the table will be extended automatically to include the new stock code. All the columns on the StockCode sheet with a yellow column heading require user input. The columns with light blue column headings contain formulas that are automatically copied for all new stock codes that are added to the Excel table.

A stock code convention that makes sense in the context of your business should be used and the stock code convention should make it easy to identify stock items based on the stock code that is assigned to each stock item. The template can accommodate any stock code convention but we suggest using a combination of letters and numbers. In our example, we have used a combination of four numbers and three letters for finished products and a combination of two letters and two numbers for bought-in and intermediate stock items.

Note: The two letters that are used in the bought-in and intermediate products assists users in identifying the type of stock - for example, RM refers to raw materials, LB refers to labour and SD refers to intermediate products. Note that even though labour is not actually a stock item, we also assign a stock code to labour cost in order to include this type of direct cost in the product costings. The same principle can be applied in order to include other direct costs like overheads or even distribution costs in the product costings.

Once you have decided on a stock code convention, you can create a unique stock code for each stock item that should be included in the product costings. The StockCode sheet includes the following columns:
Stock Code - enter a unique stock code in accordance with the stock code convention that is suitable for your type of business.
Description - enter a description of the stock item. This description should enable users to easily distinguish between stock items.
UOM - the unit of measure (UOM) refers to the stock measurement that is used when ordering, manufacturing and counting stock. Note that stock components are also included in the product costings based on this unit of measure. For example, if the recipe of a manufactured product stipulates that a specified quantity in kilogram of a raw material stock component should be added during manufacturing, it will be easier to cost the product based on a unit of measure of kilogram even though the raw material component may be ordered from a supplier in bags. For the purpose of this template, recipe (and therefore costing) units of measure carry more weight than the units of measure that is used by suppliers.
Purchase Price - the most important aspect of the purchase price is that it should be in the same unit of measure as the unit of measure that is specified in the UOM column. If a stock component is ordered from a supplier in another unit of measure, the purchase price should be converted to the unit of measure that is specified in the UOM column. Purchase prices should be entered excluding sales tax if the sales tax amounts can be claimed back from the appropriate tax authorities.
What-If Cost - the what-if purchase price should be entered in this column. This column forms part of the what-if costings which enable users to measure the sensitivity of product costings to component purchase price fluctuations. Refer to the What-If Costs section of these instructions for more information on the what-if cost analysis feature.

Note: All the columns on the StockCode sheet with a yellow column heading require user input. The columns with light blue column headings contain formulas that are automatically copied when you add a new stock code in the first empty cell in column A.

Note: Purchase prices (in column D) and what-if prices (in column E) should not be entered for manufactured products because the product costings of these stock items are determined based on the purchase prices and what-if prices of the components that have been linked to the manufactured products. If you enter a purchase price or what-if price for a manufactured stock item, the input will have no effect on the costs that are calculated.

Note: We recommend that you review all bought-in stock items on the StockCode sheet in order to ensure that no manufactured products are classified as bought-in stock items. If a manufactured product is incorrectly classified as a bought-in product, it means that no components have been linked to the appropriate product on the BOM sheet. Once you add the appropriate components to the BOM sheet, the stock code will be automatically be classified as a manufactured product.

Bills of Material

The purpose of the BOM sheet is to create a link between stock components and manufactured products. This is accomplished by entering the appropriate stock code of the manufactured product in column A and entering the stock code of the appropriate component in column B. Multiple stock components can be added to a single manufactured product in order to create a product costing which consists of multiple stock components.

Note: Columns A and B both contain list boxes that include all the stock codes that have been created on the StockCode sheet. You therefore need to create a stock code for each manufactured or component product before you will be able to select the appropriate stock code from the list boxes in these columns.

Note: The contents of the BOM sheet have been included in an Excel table. You can add a new stock component to the sheet by simply selecting the appropriate product code from the list box in the first empty cell in column A - the table will be extended automatically to include the new product code. All the columns on the BOM sheet with a yellow column heading require user input. The columns with light blue column headings contain formulas that are automatically copied for all new stock components that are added to the Excel table.

The following user input is required in the columns with yellow column headings:

Product Stock Code - the stock code of the manufactured product to which the stock component should be added needs to be selected from the list box in this column. The list box includes all the stock codes that have been created on the StockCode sheet. The product stock code should be repeated for all the components that are used in the manufacturing process. For example, if 10 components are required in order to produce a particular manufactured product, you need to add 10 different component stock codes in column B in 10 separate rows and repeat the product stock code in column A in each of these rows. All 10 component stock codes will then be linked to the same manufactured product and will be included in the same product costing.

Note: Components are listed on the product costing in the same order in which they appear on the BOM sheet. This means that even though all components do not need to be grouped together on the BOM sheet (by the product stock code), the order in which they are entered or sorted will determine the order in which they appear in the costing. We therefore recommend that you always sort the data on the BOM sheet by the product code in column A and the component code in column B after making changes to the BOM sheet. By sorting the data, the components will always be listed on the product costings in a consistent order.

Component Stock Code - a component stock code needs to be selected from the list box in column B for each component that is used in manufacturing the product which has been selected in column A. The product costings that are produced by this template accommodate a maximum number of 30 components per manufactured product. The cost of a manufactured product is calculated based on the costs of all the components that have been linked to the product on the BOM sheet.

Note: A very efficient method of adding components to a manufactured product is by copying the components from a similar product, selecting the appropriate new product code from the list box in column A and editing the input quantities and yields of all the components. This method will however only be efficient if components have previously been added to a similar manufactured product on the BOM sheet.

Input Quantity - the input quantity of the stock component that is used in the manufacturing process should be entered in column C. This quantity should be entered in the same unit of measure that is specified for the particular stock code on the StockCode sheet (the component UOM is listed in column I).

Note: The unit of measure (UOM) of the manufactured product is listed in column G. If the unit of measure of the manufactured product is "Units", the input quantity of the component should be sufficient in order to produce 1 unit of the manufactured product but if the unit of measure of the manufactured product is for example "Dozen", the input quantity that is entered should be sufficient in order to produce 12 units of the manufactured product.

Note: The yield basis should also be taken into account when determining the appropriate component input quantity. If the yield that is entered in column D is based on an Input basis, the component quantity that is added at the beginning of the manufacturing process should be entered in column C. If however the yield is based on an Output basis, the component quantity that remains at the end of the manufacturing process should be entered in column C. This is because the input quantity is divided by the yield as part of the component cost calculation.

Note: You may also want to consider entering a calculation in the input quantity column because this approach may make it easier to determine how the input quantity has been calculated (if a calculation has been necessary). For example: if the component unit of measure is dozen and only one unit is used in the manufactured product, the component quantity is calculated by dividing 1 dozen by twelve. You therefore have the option of entering 0.083333 as the input quantity or you can enter the formula "=1/12" in the input quantity column.

Yield - the component yield should be entered in column D as a percentage. The input quantity that is entered in column C is divided by the yield in column D in order to determine the component quantity that is required in order to produce the manufactured product. Yields can be determined on an Input or an Output basis - the difference between the two bases is best explained by a definition and a few examples.

Definition: The inherent nature of a manufacturing process may result in the component quantity at the end of the manufacturing process being less than the component quantity that is introduced at the start of the manufacturing process. The quantity difference can be described as a yield loss. The Input basis refers to the component quantity that is introduced at the start of the manufacturing process, while the Output basis refers to the component quantity which remains after the manufacturing process has been completed.

Note: If there is a significant yield loss during the manufacturing process and the incorrect yield basis is used to determine the yield that is entered in column D, the product costing of the manufactured product may be inaccurate. As we've mentioned before, the yield basis also affects the input quantity that needs to be entered. It is therefore important to take the yield basis into account when determining the component input quantity that needs to be entered in column C.

Example: If we use minced meat in the manufacturing of a beef burger, we have to decide on a yield basis before we can determine the appropriate input quantity that should be specified. If our aim is to produce a 400g burger at the end of the manufacturing process, the quantity is based on the output after manufacturing. We may know that on average 500g of minced meat is required in order to produce a 400g burger at the end of the manufacturing process - the 500g is therefore the Input based quantity. The manufacturing yield can therefore be calculated as 400g divided by 500g which is 80%. If we include a yield of 80% in the product costing, we need to include the output weight (400g) as the input quantity in the costing. The meat component cost is therefore calculated by dividing the 400g by 80% thereby effectively including 500g of meat in our beef burger product costing. If we use the Input basis in our product costing, an input quantity of 500g and yield of 100% should be entered (assuming that there is no meat yield loss prior to the start of the manufacturing process).

Example: Our example beef burger includes one slice of onions. With this component, we are not really concerned about the output weight because we have already decided that only one slice of onions will be included on our beef burger. The unit of measure of the onions component is kilogram and we therefore need to calculate the input quantity of this component based on how many slices are included in a kilogram of onions. The quantity that represents one slice then needs to be entered in the Input Quantity column. In principle, we are calculating the input quantity based on the Input yield basis and the yield therefore needs to be entered as 100%. We do however know that after the slicing process is completed, 5% of the onions that we purchased do not end up as sliced onions and is therefore lost before the start of the manufacturing process. We also need to take this yield loss into account in order to compile an accurate beef burger product costing. A yield of 95% is therefore entered even though we used the Input basis in determining the appropriate component input quantity.

The BOM sheet also includes 22 columns with light blue column headings. These columns contain formulas that are automatically copied for all the new components that are added to the Excel table on the BOM sheet. The purpose of each of these columns is as follows:

Error Code - the formulas in this column display an error code if there is a problem with the data that has been entered in any of the user input columns. This column should therefore be blank if all user input has been entered correctly. If any error codes are reflected in this column, the errors should be investigated and rectified in order to ensure that all template calculations remain accurate. Refer to the Error Codes section of these instructions for guidance on how to correct the appropriate user input errors.
Product Description , Product UOM - these columns are included on the BOM sheet to enable users to view the description of the product codes that are selected in column A and to ensure that the correct unit of measure is used when entering component input quantities.
Component Description , Component UOM - these columns are included to enable users to view the description of the component codes that are selected in column B and to ensure that the correct unit of measure is used when entering component input quantities.
Component Type - this column reflects the type of component that has been selected in column B. If the component type is "Bought-in", it means that the component is purchased from a supplier. If the component type is "Manufactured", it means that the component is an intermediate product which needs to be manufactured.
Bought-In Price - if the component is a bought-in stock item, the purchase price of the component that is entered on the StockCode sheet will be included in this column. If the component is a manufactured stock item, the bought-in price will be nil and the component cost will be based on the calculations in the intermediate columns.
Bought-In Cost - the bought-in cost of components is calculated by multiplying the bought-in price of the component by the input quantity in column C and dividing the result by the yield in column D.
Intermed Comp Cost - if the component that is selected in column B is a manufactured product, the component cost in this column is determined based on the product cost of the intermediate product which is calculated in column O. Note that the component cost is calculated as the sum of all the product costs of components that are linked to the intermediate product on the BOM sheet. If the component is a bought-in product, the intermediate component cost of the product will be nil.
Intermed Prod Cost - the intermediate product costs of components are calculated by multiplying the intermediate component cost of the component by the input quantity in column C and dividing the result by the yield in column D.
Product Cost - if the component is a bought-in product, the component product cost will be equal to the component bought-in cost. If the component is an intermediate product, the component cost will be equal to the intermediate product cost. Note that the product cost of the manufactured product that has been selected in column A will be equal to the sum of all the component product costs that are calculated for the particular product in this column.
Bought-In WI Price - if the component is a bought-in stock item, the what-if price of the component that is entered on the StockCode sheet will be included in this column. If the component is a manufactured stock item, the bought-in what-if price will be nil and the component what-if cost will be based on the calculations in the intermediate columns.
Bought-In WI Cost - the bought-in what-if cost of components is calculated by multiplying the bought-in what-if price of the component by the input quantity in column C and dividing the result by the yield in column D.
WI I/M Comp Cost - if the component that is selected in column B is a manufactured product, the what-if intermediate component cost in this column is determined based on the what-if cost of the intermediate product which is calculated in column T. Note that the what-if component cost is calculated as the sum of all the what-if costs of components that are linked to the intermediate product on the BOM sheet. If the component is a bought-in product, the what-if intermediate component cost of the product will be nil.
WI I/M Prod Cost - the what-if intermediate product costs of components are calculated by multiplying the what-if intermediate component cost of the component by the input quantity in column C and dividing the result by the yield in column D.
What-If Cost - if the component is a bought-in product, the component what-if cost will be equal to the component bought-in what-if cost. If the component is an intermediate product, the component cost will be equal to the intermediate what-if cost. Note that the what-if cost of the manufactured product that has been selected in column A will equal the sum of all the component what-if costs that are calculated for the particular product in this column.
Level1 Forecast - the stock quantities of all bought-in and intermediate products that are required in order to produce the forecasted finished product quantities that have been entered on the Forecast sheet are calculated in this column. Note that only the components that are directly included in the finished product bills of material will reflect quantities in this column.
Level2 Forecast - the stock quantities of all bought-in and intermediate products that are required in order to produce the Level1 Forecast quantities that have been calculated in the previous column will be included in this column. Note that only the intermediate product quantities that are included in the previous column will have an effect on the calculations in this column because bought-in items contain no components.
Level2 Forecast - the stock quantities of all bought-in and intermediate products that are required in order to produce the Level1 Forecast quantities that have been calculated in the previous column will be included in this column. Note that only the intermediate product quantities that are included in the previous column will have an effect on the calculations in this column because bought-in items contain no components.
Level3 Forecast - the stock quantities of all bought-in and intermediate products that are required in order to produce the Level2 Forecast quantities that have been calculated in the previous column will be included in this column. Note that only the intermediate product quantities that are included in the previous column will have an effect on the calculations in this column because bought-in items contain no components.
Level4 Forecast - the stock quantities of all bought-in and intermediate products that are required in order to produce the Level3 Forecast quantities that have been calculated in the previous column will be included in this column. Note that only the intermediate product quantities that are included in the previous column will have an effect on the calculations in this column because bought-in items contain no components.
Level5 Forecast - the stock quantities of all bought-in and intermediate products that are required in order to produce the Level4 Forecast quantities that have been calculated in the previous column will be included in this column. Note that only the intermediate product quantities that are included in the previous column will have an effect on the calculations in this column because bought-in items contain no components.
Level6 Forecast - the stock quantities of all bought-in and intermediate products that are required in order to produce the Level5 Forecast quantities that have been calculated in the previous column will be included in this column. Note that only the intermediate product quantities that are included in the previous column will have an effect on the calculations in this column because bought-in items contain no components.

Labour & Direct Overheads

For the purpose of compiling product costings, stock codes also need to be created for all labour, direct overheads and even distribution costs that need to be included in the product costings. These stock codes should be seen as cost centre codes instead of stock codes which are represented by physical stock on hand.

The appropriate labour pay rates or overhead allocation rates should be entered in the Purchase Price column on the StockCode sheet and the appropriate production times should be entered in the Input Quantity column on the BOM sheet. A 100% yield should be entered for all labour and overhead costs.

Example: A beef burger is manufactured in a kitchen that consists of 3 staff members. The labour rate is $10.00 per hour and a total of 400 beef burgers are produced during a shift of 8 hours. In order to add the labour component to the beef burger product costing, we need to create a stock code for labour on the StockCode sheet (in our example data, all labour related stock codes start with an "LB"), enter a UOM of hours for the stock code, enter the $10 per hour as the purchase price of the stock code, add the labour component code to the beef burger bill of material on the BOM sheet, calculate the production time (3 staff members multiplied by 8 hours in a shift and divided by the 400 beef burgers that are produced), enter the production time as the input quantity of the labour component on the BOM sheet and enter a yield of 100% on the BOM sheet.

You can create multiple labour stock codes on the StockCode sheet if there are different labour rates for different staff members. All the applicable labour stock codes then need to be added separately on the BOM sheet. Additional stock codes do not need to be created if only the production time (input quantity) differs between products because different production times can be accommodated by entering different input quantities for each product on the BOM sheet. It is only when the labour pay rates differ that separate stock codes are required.

Example: Direct overheads or distribution costs can also be added to the product costings by creating a stock code for each type of overhead. We suggest that you compile a monthly forecast of all the appropriate costs, determine the average number of units that are produced on a monthly basis, calculate the overhead rate by dividing the forecasted monthly amount by the number of units, create a stock code for the appropriate type of direct overhead cost on the StockCode sheet, enter a UOM of "Units", enter the overhead rate as the purchase price, add the overhead stock code as a component on the BOM sheet for all the applicable products and enter an input quantity of 1 and a yield of 100% on the BOM sheet.

Cost Review

The Costing sheet can be used to review individual product costings. All the calculations on this sheet are automated and the only user input that is required is selecting the appropriate stock code of the manufactured stock item from the list box in cell A4.

The Costing sheet is compiled from the data that is entered on the StockCode and BOM sheets. The component product costs and what-if costs are calculated in column O and T on the BOM sheet based on the purchase prices and what-if prices that are entered in column D and E on the StockCode sheet. The components that are included in the product costing are based on the components that have been linked to the manufactured product on the BOM sheet and the component input quantities and yields are also entered on the BOM sheet.

The Costing sheet also includes calculations of the total product cost of the manufactured product (cell H4), the total what-if cost of the manufactured product (cell J4), the cost variance between the total product cost and the total what-if cost (cell K4), the product cost of each component (column H), the what-if cost of each component (column J), the component cost percentage in relation to the total product cost of the manufactured product (column I) and the difference between the product costs and what-if costs of each component (column K). Refer to the What-If Costs section of these instructions for more guidance on the what-if cost calculations.

Note: The Costing sheet can accommodate a maximum number of 30 components per manufactured product. If you therefore link more than 30 components to a manufactured product on the BOM sheet, all the components will not be included on the product costing and the costing will therefore not be accurate.

Note: The total product cost in cell H4 on the Costing sheet is the same as the product cost of the manufactured stock item that is included in column H on the StockCode sheet. The Costing sheet can therefore be used to view a detailed breakdown of all the cost components that are included in the product cost of any manufactured stock item.

Note: Bought-in stock items are purchased from suppliers and should therefore not contain any components. As we've mentioned before, all stock items that are not linked to components on the BOM sheet are classified as bought-in stock items. If you select a bought-in stock item from the list box in cell A4, no stock components or costs are therefore listed on the Costing sheet and the stock type in cell C4 is highlighted in orange. If the stock code that you selected is supposed to be a manufactured stock item, the fact that it is classified as a bought-in stock item means that no components have been linked to the stock item on the BOM sheet.

Note: If you duplicate a stock component that is already linked to a particular manufactured product on the BOM sheet, the stock component will be also be duplicated on the product costing and result in an inaccurate product cost calculation. We have therefore implemented conditional formatting on the Costing sheet in order to highlight all duplicated components in orange in column I. If an orange cell background is displayed in any cell in column I, the appropriate component needs to be deleted from the BOM sheet in order to correct the duplication. We recommend sorting the BOM sheet by the product stock code in column A and the component stock code in column B in order to make it easier to find the duplicate entries.

What-If Costs

The what-if cost features have been added to the template to enable users to measure the effect that component price fluctuations have on the product costings of manufactured stock items. The component purchase prices that need to be analysed should be entered in column E on the StockCode sheet. All other what-if cost calculations are updated automatically.

Note: What-if costs should only be entered for bought-in stock items (items that are purchased from suppliers). If you enter a what-if cost for a manufactured stock item, the cost will have no effect on the template calculations.

The what-if costs are calculated and included in the what-if costings based on the what-if purchase price that is specified in column E on the StockCode sheet and the component input quantities and yields that are specified on the BOM sheet (the same input quantities and yields that are used in the product costings). The what-if component costs are calculated in column T on the BOM sheet, included in column J on the Costing sheet and the total what-if cost of the manufactured product that is selected from the list box in cell A4 on the Costing sheet is calculated in cell J4. The component what-if costs and the total what-if cost of the manufactured stock item are also compared to the appropriate product costs on the Costing sheet.

As we mentioned before, the what-if cost features can be used to analyse the effect that component price fluctuations have on product costings. We recommend that you start this cost comparison exercise by copying the purchase prices of all bought-in stock items from column D on the StockCode sheet to column E on the StockCode sheet. The prices in column E (the what-if cost column) can then be amended to the what-if purchase prices that you want to analyse. The same procedure should be followed regardless of whether you want to analyse the effect of a price fluctuation in a single stock component or all stock components.

All the what-if cost calculations in the template are automatically updated and you can view a comparison of all manufactured stock items on the StockCode sheet or view a comparison between the what-if cost and the product cost of a single manufactured stock item by simply selecting the appropriate stock item from the list box in cell A4 on the Costing sheet.

Note: What-if costs have also been included in the margin analysis on the Margins sheet. Refer to the Margins section of these instructions for guidance on how the profit margins are calculated on this sheet.

Note: If you want to analyse the effect that changes in component input quantities and yields have on the product costings, you will have to save this template under a different file name, edit the component input quantities and yields on the BOM sheet of the new workbook and then compare the product costs of the manufactured stock items on the StockCode sheets of both workbooks. We also recommend adding a calculation on one of the StockCode sheets that looks up the values in the other workbook based on the stock codes in column A - this will enable you to compare the product costings in the two workbooks on the same sheet.

Quantity Forecast

The Quantity Forecast features that have been added to the template enable users to enter forecast quantities for all the appropriate manufactured stock items on the Forecast sheet in order to calculate the stock component quantities that are required in order to produce the specified quantities of manufactured products. These calculations are extremely useful for requirements planning or stock usage measurement purposes.

Note: Requirements planning refers to the process of calculating the quantities of manufactured stock items that need to be produced (usually based on sales forecasts) and then calculating the component quantities that will be required in order to produce the manufactured products. Orders are then placed with the component stock suppliers based on the quantity requirements that have been calculated.

Note: Component stock usage can be measured in much the same way. Instead of entering the quantities of manufactured stock items that need to be produced, users enter the quantities of manufactured stock items that have actually been produced during the period under review. The component quantities that should have been used in order to produce the specified manufactured stock item quantities are then automatically calculated (based on the product costings) and these quantities can then be compared to the actual component stock quantities that have been used in order to measure production efficiency and the accuracy of the input quantities and yields that have been included in the product costings.

Quantity forecasts can be compiled by simply specifying the stock codes of the appropriate manufactured stock items in column A on the Forecast sheet and entering the quantities of each manufactured stock item on which the forecast should be based in column E.

Note: The contents of the Forecast sheet have been included in an Excel table. You can add a new stock code to the sheet by simply entering the appropriate stock code in the first empty cell in column A - the table will be extended automatically to include the new stock code. The columns with light blue column headings (columns B, C and D) contain formulas that are automatically copied for all new stock codes that are added to the Excel table.

Note: We also recommend entering the forecast date in cell G2 before printing the sheet in order to keep a record of the manufactured product quantities that have been used in all quantity forecasts because once you replace the quantities on this sheet with new forecast quantities, there will be no record of the forecast quantities on which the previous forecast has been based.

Note: Before using the Forecast feature, you should ensure that all your product costings are accurate. If you base the forecast on inaccurate product costings it may result in the incorrect component quantities being ordered from suppliers or an inaccurate analysis of production inefficiencies.

The quantity forecast is calculated by applying the finished goods stock item quantities that are specified on the Forecast sheet to the appropriate components that are entered on the BOM sheet for the particular manufactured stock items. This calculation is based on the appropriate component input quantity, yield and unit of measure and is included in columns U to Z on the BOM sheet.

The Level1 Forecast quantities are determined based on the components that are directly included in the finished goods bills of material. The Level2 Forecast quantities are based on the Level1 Forecast calculations, the Level3 Forecast quantities are based on the Level2 Forecast quantities and so forth.

Note: The Forecast calculations that have been included in this template therefore incorporate 7 levels of bills of material. If you need to include more than 7 levels of bills of material, contact our Support function in order to request a customized version of this template and specify the number of levels that you need to include in your product costings. Note that the product costing calculations incorporate an unlimited number of bill of material levels - the limit of 7 levels only applies to the Forecast calculations.

The forecast quantities that are calculated on the BOM sheet are not really that important (only included on the BOM sheet for calculation purposes). The quantities that are included in column J on the StockCode sheet are a lot more important because they represent the total component quantities that are required in order to produce the finished goods stock quantities that are entered on the Forecast sheet.

Note: The forecast quantities on the Stock Code sheet include both the bought-in and intermediate quantity forecasts even though the intermediate products are not ordered from suppliers but manufactured in house. We have included the quantities for both of these component types because it may be useful to be able to determine the quantities of intermediate components that need to be produced in order to manufacture the specified quantities of finished good products (as per the Forecast sheet).

Note: We highly recommend using the Quantity Forecast features to measure actual stock component usage against the calculated component quantities because this process will highlight discrepancies between the component quantities that are included in product costings and the component quantities that are actually being used during the production of manufactured products. Product costings should also be reviewed regularly based on the results of the usage measurement exercise. Remember that the Quantity Forecast calculations in this template can only be as accurate as the component input quantities and yields that are included in the product costings.

Margins

The Margins sheet enables users to calculate the gross profit margins of all manufactured stock items based on the product costings and what-if costings. The only user input that is required is selecting, entering or copying the appropriate stock code of the finished goods stock item into column A and entering the appropriate selling price in column E.

Note: The contents of the Margins sheet have been included in an Excel table. You can add a new stock code to the sheet by simply selecting the appropriate stock code from the list box in the first empty cell in column A - the table will be extended automatically to include the new stock code. The columns with light blue column headings contain formulas that are automatically copied for all new stock codes that are added to the Excel table.

Note: The selling prices that are entered in column E should be exclusive of sales tax if the business is registered for sales tax purposes.

The product cost in column F and the what-if cost in column I are the same as the product cost and what-if cost for the particular manufactured stock item as calculated on the StockCode sheet. The gross profit amounts in column G and J are calculated by deducting the product cost or what-if cost from the appropriate selling price in column E. The gross profit percentages in columns H and K are calculated by dividing the gross profit amounts in column G and J by the appropriate selling price in column E.

The what-if selling prices in column L are calculated by applying the gross profit percentages in column H to the what-if costs in column I and therefore calculate what the selling price should be in order to sustain the same level of profitability if the price fluctuations that are included in the what-if costs come into effect. The selling price increases in column M indicate the percentage variance between the what-if selling prices in column L and the selling prices that are entered in column E.

Error Codes

The following error codes may result from inaccurate user input on the StockCode, BOM, Forecast and Margins sheets and will be displayed in the Error Code columns. The heading of the affected input column will also be highlighted in orange:

E1 - this error code means that a duplicated stock code has been entered in the appropriate row. The error can be corrected by simply deleting one of the duplicated entries.
E2 - this error code means that the purchase price input in column D on the Stock Code sheet is incorrect. A purchase price should be entered for all bought-in stock items but is not required for manufactured products. When adding new manufactured stock items to the StockCode sheet, this error code will be displayed until the appropriate components have been added to the BOM sheet. The error can be therefore be corrected by adding a purchase price for a bought-in stock item, adding components to a manufactured stock item or deleting a purchase price that has been specified for a manufactured product.
E3 - this error code means that the what-if price input in column E on the Stock Code sheet is incorrect. A what-if price should be entered for all bought-in stock items but is not required for manufactured products. When adding new manufactured stock items to the StockCode sheet, this error code will be displayed until the appropriate components have been added to the BOM sheet. The error can be therefore be corrected by adding a what-if price for a bought-in stock item, adding components to a manufactured stock item or deleting a what-if price that has been specified for a manufactured product.
E4 - this error code means that the product stock code that has been specified is invalid. Stock codes must be created on the StockCode sheet before being used on any of the other sheets and the error can therefore be corrected by simply creating the appropriate stock code on the StockCode sheet. If a stock code has been deleted, this error code will be displayed in all the rows on the other sheets that still refer to the stock code. These entries must be deleted or a valid stock code needs to be selected in column A.
E5 - this error code means that the component stock code that has been specified is invalid. Stock codes must be created on the StockCode sheet before being used on any of the other sheets and the error can therefore be corrected by simply creating the appropriate stock code on the StockCode sheet. If a stock code has been deleted, this error code will be displayed in all the rows on the BOM sheet that still refer to the stock code. These entries must be deleted or a valid stock code needs to be selected in column B.
E6 - this error code means that a component has been duplicated in the same product costing. Components should only be included once in any particular product costing and duplications of component codes may result in inaccurate product costings. This error can be corrected by sorting the data on the BOM sheet in an ascending order based on the product code in column A and then by the component code in column B before deleting any duplicated entries that may exist.

Note: Input errors may result in inaccurate template calculations and it is therefore imperative that all errors are resolved before reviewing the product costings, quantity forecasts or profit margins.

Product Costing Template

How to use the Product Costing template