Cost product BOM components example Excel spreadsheet.
The Cost product BOM (Bill of Materials) allows to obtain the expected calculation of the cost of a product incorporating those direct resources that we are going to consume such as raw materials, working hours, energy consumed, machine hours …
A very simple example of a Cost product BOM can be a “cooking recipe”, in the case of the example the Cost product BOM is divided into 2 sections, one for raw materials and another for working hours.
The basic information to make a Cost product BOM is usually, components, unit of measures, quantities, unit costs, total cost of the component and total cost of the product BOM …
The total cost obtained with this recipe is an expected cost, target cost or budgeted cost…. Based on experience and technical requirements, the Cost product BOM is elaborated.
Many companies use the Cost product BOM to calculate prices by applying a margin or percentage to the total cost or the final price to know the expected profitability of the product to be manufactured.
It must be taken into account that the reality regarding the Cost product BOM may be different, in a Cost product BOM budgeted or target costs are used, in real manufacturing that cost may vary.
Reasons why the cost of a real manufacture may vary with respect to the Cost product BOM:
1) Variation of the purchase cost: The purchase cost of the products can vary by many aspects.
2) Variation of the quantity used: It is assumed that in industrial companies with automated and controlled processes the quantities must be homogeneous and with a minimal variation, but there are companies that either due to the process or the nature of the product there may be significant variations in the consumed amount.
3) Substitution of one component for another: It may be the case that due to a shortage of product (stock break) or for some other reason, a component has to be replaced by another similar or with similar characteristics.
4) Variation in working time: In this section, there are always variations since people are not robots that work at a constant speed. The reasons for variations in time worked can be very broad.
If we can calculate the real cost of production or manufacturing later, it can be compared with the budgeted cost and make decisions such as adjusting the Cost product BOM to adjust sales prices, improve manufacturing processes, reduce purchase costs …
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