Expert: Eric Hofer - 10/29/2008

Question
Do you have a sample you might be willing to share? I'm looking for at least a good example of a COGS model.  I'm launching a functional bev.  Thank you.

Answer
Peter,

Sorry; it's never been my specialization and while I've had COGs and PVC (Product Variable Costing) explained out many times, I'd have to dig...

I would think though that you can tease out the variables easily:-
- raws
 .. labels
 .. bottles
 .. closures
 .. syrup
 .. other (sugar, eg.)
 .. co2
 
- fixed mfg
 .. hours run (overall plant to product run allocation)
 .. change over
 .. clear down/slag

- units produced
 -- run off and run up
 .. dropped/destroyed (no-qa)
 .. sampling/testing (qa)

- immediate warehousing
 .. floor costs per pallet placement x days
 .. immediate transport (alloc per pallet)

- taxes
 .. customs (import/export)
 .. specific government/utility surcharges
 .. environmental legislation (eg. plastic recycling)

- reusables (e.g. shells, GRB)
 .. contribution to deposit replacement funding

---

You might also recombine such with previous run costings; to arrive at a current average COGs for doing your Operating Review (something I do have experience with); and further, to look at Primary Transport and Secondary warehousing.

Destruction of stales, recalls, etc. I think are usually not considered in COGs.

Further, on change overs, there are some opportunities to switch packaging - eg. filling pre-mix after / during a run of say PET - these should be shared as fairly as possible.

Its critical if you have external auditors, that you can support your decision as to how you derived your computations; and/or if you also have some sort of gov't/utility reporting (e.g. water consumption taxes) that back in based upon volume (and offsetting sewerage that isn't consumed).

Hope that helps,

E