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Calculating the Total Cost to Producte a Keg

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  • Calculating the Total Cost to Producte a Keg

    I know this is a tough one! But working on some numbers and want to see if anyone can give me some insight on the industry average to calculate the cost to produce a keg, so that I can then figure margins. I know style of brew with ingredients can greatly vary the cost.

    I am defining the product cost for a keg using the following:

    -Ingredients
    -Utilities (electricity, propane, water, CO2)
    -Brewing & Sanitizing labor
    -State & Fed Tax
    -Keg (rental + collars + initial/final transportation)


    I am not factoring in fixed costs in product cost such as rent, insurance, wages for marketing or admin staff, etc. Does that calculation seem correct to most of you out there? Should I be factoring in cold storage cost as part of my product cost?

    What is an industry average production cost for say a 1/2 bbl of a standard lager or standard pale ale? And I mean the average for a start up brewery.


    THANKS!

  • #2
    Check this out

    I put this page together while a friend and I tried to open a small brewpub in Sun Prairie, WI in 2008-2009. If you're interested in our startup experiences, you can read about them at the RePublic Brewpub weblog. Since we dissolved the business, I've used this site primarily to share calculations

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    • #3
      Great spreadsheet, but he only calculates COG for a keg with ingredients. I am also building a contract brewing beer business, not a brewery itself. I was under the impression that any cost which can be directly identified in the end product should be part of my product cost.

      Any other thoughts out there? Do my cost breakdowns seem normal for a contract beer manufacturer? Also, any idea on the industry average cost for a 1/2 bbl standard lager or standard pale ale?


      THANKS!

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      • #4
        It's not clear to me what exactly you're trying to do.
        Are you just trying to estimate the variable cost of a keg of beer?

        Overhead and admin will be most of your costs. Most of those costs are fixed. Some of them are only variable on a per-batch or per-setup level.

        If you're hiring someone to make the beer for you, I wouldn't be surprised if half the cost of the order is going to their overhead and admin. The truly variable costs are going to be very low. Barley and water are cheap. . .

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        • #5
          I am trying to calculate the COGS (costs of good sold) for a keg of beer. Like you said, I have admin, insurance, etc as overhead or indirect costs which I don't factor in the COGS and instead put under operating expenses. I am treating brewing labor as direct costs with I am factoring into the COGS. I am also thinking that keg rental and initial freight costs of the kegs to the brewery to be filled are direct costs which can be calculated per keg produced. I am thinking now that I should not be calculating taxes as part of COGS. Any thoughts? And what about cold storage costs? Should I make that part of COGS or treat it like rent and put it under operating expenses?


          My question is really to see how others are calculating this.

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          • #6
            Originally posted by ac77 View Post
            I am trying to calculate the COGS (costs of good sold) for a keg of beer. Like you said, I have admin, insurance, etc as overhead or indirect costs which I don't factor in the COGS and instead put under operating expenses.
            OK, let me stop you there. Here is the correct way to calculate COGS:

            Beginning inventory of direct material + purchases = Direct material available for use

            Direct material available for use - ending direct material inventory = direct material consumed

            Total manufacturing cost = Direct material consumed + Direct labor used + Factory overhead

            Cost of goods manufactured (COGM) = Total manufacturing cost + beginning work in process - ending work in process

            COGS = COGM + beginning inventory of finished goods - ending inventory of finished goods.

            To answer your specific questions, all costs that go into producing and warehousing the beer are "inventoriable" which means under GAAP you need to assign them to your per-item cost. So cold storage costs would be part of the factory overhead applied to your total manufacturing cost. The portion of rent applicable to the manufacturing activities is also part of factory overhead.

            In general, the capitalized cost of equipment includes shipping and setup. So if you're capitalizing your kegs, you can include shipping costs. I'm not sure about capitalizing rented equipment, though. Are the kegs actually "leased," or is it a rent-to-own thing where you're actually purchasing them with an implicit financing agreement? If it's the latter, you can capitalize all the relevant costs. If it's the former, they're probably period selling expenses and are not inventoriable.

            Logically and accurately applying overhead costs to your product is the most difficult aspect of cost accounting, and in many cases means the difference between making and losing money.

            Costs incurred to get the product out of your warehouse would be "selling costs" and would be period expenses.

            As far as the excise taxes go, it depends on your state laws whether those can be lumped into COGS. In Texas, for instance, you can apply the Federal excise tax to your COGS to reduce your TX tax liability: http://www.txsaltlaw.com/archives/te...oods-sold.html
            Last edited by nateo; 11-07-2013, 09:04 AM.

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            • #7
              I was thinking about this thread this morning, and I realized I mixed up the UNICAP standards with the GAAP standards. If your sales are under $10m, UNICAP doesn't apply. I assume a start-up isn't going to have $10m in sales.

              Here's the IRS's website on the differences:http://www.irs.gov/Businesses/Small-...Indirect-Costs

              Under GAAP, any purchasing costs are expensed. Direct materials, direct labor, and both direct and indirect production costs are capitalized. Storage, handling and excise taxes are expensed. Selling and distribution costs are also expensed.

              So excise taxes and cold storage costs would be expensed in the period they're incurred. Other overhead costs incurred during production would be capitalized under GAAP.

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              • #8
                Thanks for your help Nateo! That gives me some good information so I can go back and rework my numbers. Thank you!

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                • #9
                  Overhead costs

                  From nateo - "Logically and accurately applying overhead costs to your product is the most difficult aspect of cost accounting, and in many cases means the difference between making and losing money"

                  This statement is HUGE.

                  It should be repeated incessantly by anyone thinking of starting up a brewery.

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