Glossary
What is a cost roll-up?
How a cost roll-up builds a product's cost from its bill of materials, and why it differs from the actual cost of a production run.
Updated
In short
A cost roll-up adds a product's component costs, scrap and extra costs from its BOM into a standard cost per unit. SimpleERP shows a live roll-up on every BOM at current average costs.
A cost roll-up calculates what one unit of a manufactured product should cost by adding up its bill of materials: each component's quantity, raised for scrap, times its current cost, plus labour and overhead per batch, divided by the batch size. The result is a standard cost used to set prices and to compare against the actual cost of each production run.
Cost roll-up: a worked example
Standard cost per unit = (Σ component qty × (1 + scrap %) × average cost + extra cost per batch) ÷ batch size. For Lakshmi Steel's Steel rack 4 shelf:
| Component | Qty per 10 racks | Scrap % | Planned qty | Average cost | Cost |
|---|---|---|---|---|---|
| Slotted angle 6 ft | 40 Nos | 0% | 40 Nos | ₹310 | ₹12,400 |
| Shelf panel 36 × 18 in | 40 Nos | 2.5% | 41 Nos | ₹290 | ₹11,890 |
| Nut and bolt set | 320 Nos | 0% | 320 Nos | ₹2 | ₹640 |
| Powder coat paint | 4 kg | 5% | 4.20 kg | ₹450 | ₹1,890 |
| Material cost | ₹26,820 | ||||
| Labour and power per batch | ₹4,380 | ||||
| Standard cost per rack | ₹31,200 ÷ 10 = ₹3,120 |
The rack sells at ₹4,990 before GST, so the standard margin is ₹1,870 a rack. The last work order came in at ₹3,127.10, ₹7.10 over standard, mostly from two extra dented panels.
FAQ
Questions, answered
What is the difference between standard cost and actual cost?
Standard cost is what the BOM says one unit should cost at today's prices. Actual cost is what a real run cost, from what it consumed. The gap points to waste, price changes or a BOM that needs updating.
Why does the roll-up change when I have not touched the BOM?
Because it uses current average costs. A new bill for shelf panels at a higher rate raises the average, and every BOM using panels shows a higher standard cost straight away. That is the point: it reflects what the next batch will cost.
Does the roll-up include labour?
Only what you put in the BOM's extra cost per batch. Add wages and power for one batch there. Without it the roll-up shows material cost only, which understates the cost of the product.
How do I use cost roll-up for pricing?
Start from the standard cost per unit, add your target margin, then check the market price. If the roll-up says ₹3,120 and buyers pay ₹4,990, you know the margin before quoting. Recheck after any big raw material price change.
Related
Keep reading
Bill of materials (BOM)
The recipe for a manufactured product: components, quantities per batch, expected scrap and extra cost per batch.
Read moreWeighted average cost
A stock valuation method where every unit carries the same cost: stock value divided by quantity, re-blended on each receipt.
Read moreManufacturing
Bills of materials with scrap and cost roll-up, and work orders from plan to complete.
Read more
Run your whole business from one simple place.
Seven days free. No card. Your first GST invoice in minutes.