Raw Materials, WIP and Finished Goods – controlling the manufacturing process and enjoying the profits

by | Dec 20, 2019 | News

Are you engaged in manufacturing, do you – or your clients – have raw materials, work in progress and finished goods that you need to control, cost and sell?

Forecast 5 helps you budget your work in progress, reports your average cost of production and when you price your finished goods, you have a clear analysis of all the costs of production. 

In Forecast 5, we call this a Stock on Hand record.

Stock on Hand can come in many guises, a bill of materials for a manufacturing process, the cost breakdown for a winery, or for a construction project, a services company, a farming enterprise, a land development company, an engineering business, professional services company – for instance accountants, quantity surveyors or lawyers – with time allocations being charged to work in progress – to mention just a few examples.

Forecast 5 uses three main stock records, and all entries via these records initially land up on the balance sheet. But it’s what takes place next where the magic happens.

Components of cost are assembled in a Stock on Hand record – as many as you wish – to build up the budgeted value. The components could be raw materials, overheads or wages. The records differentiate by unit numbers and value, leading to total stock cost and average cost per unit.

Sales are linked by units to the Stock on Hand record with appropriate transfers of Cost of Sales to the Profit and Loss Account.

With a construction contract raw materials, labour, services, equipment, contingency costs, overheads and facility costs can all be costed to the job estimate so that a full forecast bill of materials is produced. All of this can be modelled using Forecast 5’s Stock on Hand functionality. The resulting project can then be priced and invoiced over time, with or without retentions – another feature of Forecast 5.

The invoices are processed as sales in the Profit and Loss Account – as one would expect – with the relevant Cost of Sales being transferred automatically from the Stock on Hand on the balance sheet to P&L, reflecting the gross profit from the sale with the right timing both as regards income accrual and cashflow.

Or take, for instance, a winery, where the two main cost areas are what takes place in the vineyard followed by the costs incurred in the cellar.

Based on the expected units of production – litres, kgs or tons (and 1 ton of grapes may yield about 700 litres or about 930 bottles – choose whichever units you prefer) the user will budget for the various costs expected.

In the vineyard, for instance, there may be grapes, fertiliser, water and wages costed into the year’s growth. These costs will each have their own record but costs will be accumulated into the Stock on Hand record, in this case, “Grapes”. As the various budget cost elements are added to Grapes, the total budgeted cost of the Grapes and the average cost per unit will be generated by the system.

Continuing the budget process, in the expected harvest month, the total units will be transferred from the vineyard to the cellar – and the costs will similarly transfer, to a “Bulk Wine” record, also styled as a Stock on Hand record.

Components of cost are added to the Bulk Wine, such as yeast, wages, overheads, bottles, labels, packaging etc. As the components are added, the overall cost of production will rise as will the average cost per litre or kg (or whichever units chosen).

Turning now to the budgeted sales, these are designated as ”From Stock on Hand” with the budgeted Cost of Sales transferring automatically to the P&L – based on unit sales – and the forecasts for the P&L, Cashflow and Balance Sheet are all updated.

Provided Dionysus – or Bacchus if you prefer the Roman diety – smiles on your harvest, you should be able to sit back and enjoy a satisfying glass or two plus the profits of a successful year’s winemaking!

Forecast 5 is the leading forecasting and budgeting software. Developed in New Zealand, it is distributed in Europe and the UK by Johnny Kipps of KBR Limited, 18 Bowling Green Road, Castletown, Isle of Man, IM9 1EB.

Forecast 5 produces an integrated and balanced set of key forecast reports: Cashflow, Profit and Loss, Balance Sheet and Funds Flow Statement for up to fifteen years. After actual monthly accounting results have been imported, Forecast 5 will produce Variance Analyses – including for your corporate KPIs – and Rolling Forecasts.

We are pretty sure we have a solution for your business. Contact us for a trial and proof of concept. 

To download a free 21 day trial of Forecast 5, please do so from www.forecast5.co.uk/trial/.

To discuss your budgeting and forecasting requirements, please email [email protected] or phone +44 07770 608 900.

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