Bill of materials: what each unit really costs
Anyone who makes, cooks or assembles something usually knows what they sell it for and not what it costs them. The bill of materials is the sum that is missing, and it almost always comes out higher than expected.
The list of components, quantities and labour needed to produce one unit of something, with the cost of each item and the resulting total cost.
It is not a tax concept: it is an accounting one, and it sits behind the stock valuation the Plan General de Contabilidad requires. What you make is not valued at what it is worth on the market, but at its production cost: raw materials, other consumables and whatever share of direct costs applies.
The three parts of a bill of materials
- The components and their quantity. What goes in and how much of each thing.
- Waste. What is lost along the way. If you get 800 grams out of a kilo of potatoes, the potato is not worth more: it is that you have to buy more potato.
- The labour and the units that come out. One run of the recipe takes a certain time and produces a number of units, and the cost per unit comes from dividing.
An example with numbers
A bakehouse makes 40 loaves per batch. Per batch it uses 20 kg of flour at €0.80/kg, 0.4 kg of yeast at €6/kg and one hour of labour at €14:
- Flour: 20 × 0.80 = €16.00
- Yeast: 0.4 × 6 = €2.40
- Labour: €14.00
- Batch total: €32.40 · per loaf: €0.81
With 5% waste on the flour, the batch goes up to €33.20 and the loaf to €0.83. Two cents which, at 40 loaves a day, come to almost €300 a year.
Why it nests
If a component is also made in-house, its cost is not the one on its record: it is the cost of its own bill of materials. The sourdough that goes into the bread is not bought, it is made, and its purchase price either does not exist or is out of date. That is why one bill of materials calls another, and why you have to watch that they do not chase their own tail.
The mistake that comes up most
Valuing the finished product at the purchase price on its record. An item's cost field is what it costs you to buy it, and for something you make yourself that figure is either empty or from another era. The result is a margin that looks good in the report and never turns up in the bank.
Where this carries on in Cairos: Inventory, costs and manufacturing in Cairos.
Terms that go with this one
Almost no tax concept makes sense on its own. These three are the ones that most often turn up beside it.
Depreciation
The systematic spreading of the cost of a fixed asset across the years in which it is used, as a deductible expense of each of them.
AccountingJournal entry
The entry that records an economic event in the journal, split between debit and credit accounts for the same amount.
InvoicingTaxable base
The total consideration for a transaction before VAT is applied to it: what you really charge for your work or your goods.
This, handled without thinking about it
Cairos keeps the invoices, the record books and Hacienda's forms from the same data, so the theory on this page turns into boxes that are already filled in.
No card and no minimum term.