From the notebook to production orders: how a factory finds out what a batch really costs

The short answer

A factory that runs on a notebook can make good products and still not know what a batch cost, because the recipe, the materials taken from the store, the wages and the waste are written in different places. The fix is a short chain of records: a recipe, a production order that issues materials from stock, the stages and wages the order went through, and a close that posts the difference from plan. TexaCore’s manufacturing module covers that chain with recipes, orders, stages, wages, co-product cost split, subcontracting, quality holds and cost reports. It is available today and is being field-proven, and it does not control machines.

Where the notebook breaks

A notebook is a fine start. These are the points where it stops working as the factory grows:

• The recipe lives on one page, or in one person. When a quantity changes, nobody can say which version made last month’s batch.
• Materials leave the store on a verbal request. What was really consumed is discovered at the stock count, if at all.
• Wages are added up separately. Piece-rate and hourly pay is totalled on paper at the end of the week and never reaches the cost of the batch.
• One run, several outputs. A mix may give a main product, a co-product and scrap, but the whole cost is loaded on the main product.
• Work sent outside disappears. Material handed to an outside workshop is not in the books until the goods come back.
• Rejected batches are remembered, not recorded. The cause and the corrective action live in someone’s memory.
• Fabric is cut without a trace. Nobody knows which roll fed which order, or how many metres are left on it.

What it costs the business

None of these is a disaster on its own. Together they turn the cost of production into a guess, and a guess shows up in decisions. The effects are qualitative; how large they are depends on your business and can only be measured on your own data.

• Prices are set from memory. A product can be sold below its real cost for months before anyone notices.
• Profit appears late. It shows at the stock count or the year end, so a bad month cannot be corrected while it is still the current month.
• Waste has no owner. When consumption is not recorded, losses and over-use are invisible, and arguments replace figures.
• Purchasing reacts instead of planning. Materials run out in the middle of an order, or sit in stock for months.
• The same quality problem returns. Its cause was never written down, so it is never closed.
• The business depends on a few people. Absence, growth and hand-over all become risks because the recipes are in their heads.

What a “known cost” means

In plain terms, the cost of a batch is what went into it: the materials issued, the wages of the people who worked on it and a fair share of the running costs of the production line. When one run gives several products, the total has to be divided between them on a rational basis instead of being loaded on the main product. Accounting standards say the same thing: IAS 2 describes the cost of a manufactured item as its materials, direct labour such as wages and a systematic allocation of production overheads, and asks for the cost of joint products to be shared on a rational and consistent basis.

Which overheads you include is an accounting policy to settle with your accountant. The manufacturing module’s published description covers materials and approved wages, so ask about anything beyond them before you rely on it. In any system the finished goods should enter stock at that cost, and when they are sold the same cost becomes cost of goods sold (see how stock movements affect cost of goods sold).

How TexaCore solves it

Every row below is a published capability of the manufacturing module. All of them are available today and are being field-proven.

Know the limits before you rely on it. TexaCore does not control machines: weights from a mixing line arrive through a separately installed line bridge, or one dosed total is typed in. There is no OEE (overall equipment effectiveness) and no capacity planning, and no library of ready-made industry templates. Planning tools exist (a plan request with a material and cost preview, material requirements planning and a daily plan), but they are among the less mature parts of the module, so start with recipes and orders. The module is available today and its validation in working factories is still in progress; this article does not claim it fits every kind of production.

How to start

1. Choose one product line. Start with the two or three products you make most; the rest can follow.
2. Put the materials in stock properly. Each raw material needs an item card with its unit and a cost, received through a purchase receipt (see inventory and warehouses).
3. Enter the recipes by hand or import them from Excel, and run one real order next to the notebook for a week.
4. Compare. Check issued quantities, waste and output against the notebook, and correct the recipe, not the figures.
5. Add stages and wages once the recipes match, then read the order cost report at every close.

Cloud plans start with a 30-day free trial. Which plans include the manufacturing module is shown on the pricing page.

About this article

Published by TexaCore. It explains general ideas in plain terms; accounting policy, tax and statutory rules are not covered, so confirm them with a qualified accountant. Statements about TexaCore describe the module’s published pages on the date above, and each feature row carries its status. The outside standard used is listed under Sources.

Related reading

• Warehouses and raw materials: keeping units, locations, serial numbers and rolls under control
• When accounting-only software stops being enough: books that follow the work
• How stock movements affect cost of goods sold