One of the more complex financial models I built was for a general manufacturing plant. The logic required to get the cost of goods sold and average cost per unit flowing correctly was extensive. Driving down to cash flow was even more complicated. This is one of the only businesses where you can have non cash items that are hitting cost of goods sold (property/plant/equipment depreciation).
Relevant Templates:
- Made to Order Manufacturing Financial Model
- Manufacturing Plant Financial Model
- COGS Valuation (FIFO Methodology) Calculator
- Volume Pricing Model
In a manufacturing plant, the cost of goods sold (COGS) typically includes the direct costs associated with producing the goods. These costs can be categorized into three main types:
- Direct Materials: These are the costs associated with the raw materials and components used in the manufacturing process. It includes the cost of purchasing or acquiring the materials, as well as any freight or transportation costs related to bringing them to the plant. For example, the cost of steel, plastic, or electronic components used in the production.
- Direct Labor: This includes the wages, salaries, benefits, and other related expenses of the employees directly involved in the manufacturing process. It covers the workers who directly handle the materials and equipment to produce the goods. For example, the wages of assembly line workers or machine operators.
- Manufacturing Overhead: This category includes other indirect costs that are necessary for the manufacturing process but cannot be easily attributed to a specific product. It encompasses various expenses such as factory rent, utilities, equipment maintenance and depreciation, indirect labor (e.g., supervisors or maintenance staff), quality control costs, and other indirect manufacturing costs.
It's important to note that not all costs in a manufacturing plant are considered part of COGS. Administrative expenses, sales and marketing costs, research and development expenses, and other non-manufacturing costs are typically not included in COGS but are accounted for separately as operating expenses.
The specific costs included in COGS may vary depending on the company's accounting practices and the nature of the manufacturing process. It is advisable to consult with a professional accountant or refer to specific accounting standards applicable in your region for precise guidance.
