Food processing | Profit Under Pressure
Average costing hides where margin is lost
Cost decisions that protect margin happen at the product level, not the plant level. Processors who know what a specific item costs before they price it, commit to a contract, or schedule a run can make those decisions with far more certainty than processors relying on a plant-wide average.
Pricing, production, and volume decisions depend on cost. When the number reflects the labor, material, and handling required to produce a specific item, those decisions are grounded in what that product actually costs to make. A blended average works differently. Cost is spread evenly across everything the plant produces, which means decisions are tied to a number that doesn't belong to any single product.
This article explains how blended costing distorts the margin picture, what product-level costing changes, and why better cost information leads to better pricing, production, and margin decisions.
3 questions to ask in your food plant
- Do you know your cost by product, or does one blended number cover everything in the plant?
- If a large order came in today, how long would it take to know what that order will cost to produce, and where does that number come from?
- Do you know which products are protecting margin and which are eroding it? By item?
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