I had a client ask me how to enter direct labor costs into the made-to-order manufacturing model and the only answer I could give was to manually input the labor costs into the fixed overhead sections and adjust the costs each year according to the expected unit volumes. This was not ideal so there has been an update to the default version of this template.
Download the template here: https://www.smarthelping.com/2023/06/made-to-order-manufacturing-10-year.html
Main Updates:
- Added a new section for direct labor cost per unit for each unit type.
- Added a new section for variable manufacturing overhead cost per unit for each unit type.
- Each section has 25 individual cost per unit inputs.
The way these costs hit cash flow is based on the input for the number of months it takes to ship units measured from the order month. The number of months in between that is the implied production cycle and so the total direct labor and variable overhead costs for the units ordered in a given monthly cohort are evenly spread across that time frame. The actual income statement effect is seen on the month of delivery, where all these cost of goods sold amounts are recognized.
Likewise, when the costs are incurred and cash is paid out for labor / variable overheads, inventory goes up (often called work-in-progress/process) or WIP. The COGS reduces this inventory amount when the units ship. All of this logic happens automatically and the values will change as assumptions are changed.
