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Cost of Goods Sold (COGS) is an accounting metric used by manufacturers and other businesses to weigh the direct cost of making a product. COGS is broadly split into three categories: materials/supplies, overhead and labor.
DISTILL x 5 and Whiskey Systems have built-in functionality to track Material COGS from grain receipt through to production, storage and packaging. Getting a meaningful Material COGS out of your tracking software relies on good inputs: you have to carefully include the cost of materials and supplies as you receive them, including their shipping costs. Then, as you transact in the system, you must carefully deplete the correct materials in the right quantities in order to ensure costs are accumulated and assigned. Material COGS is usually where you can find cost savings, so the effort of setting it up and monitoring it closely can have significant payoffs.
Overhead COGS are things like rent, utilities, & insurance. You generally don’t know exactly what your overhead COGS will be for a given month until the month is over, so the best practice is to account for Overhead COGS in your accounting system of choice (e.g. QuickBooks or Xero), after the fact.
When it comes to Labor COGS, Whiskey Systems has built-in functionality which allows you to define a labor rate, and then your operators enter their labor hours as they enter transactions into the system. A labor cost is computed (Hours x Rate) and rolled into the COGS of the intermediate and finished products. In the case of DISTILL x 5, you can use a pseudo-material item in your inventory to represent Labor Cost and consume that item in your cooks, ferments, distillations, bottlings, etc. However, much like Overhead COGS, Labor COGS is typically unknown until the time period is settled. For this reason, we advise our clients to track Labor COGS in your accounting system, rather than in your distillery management software.
Does it feel like you’re swimming in acronym soup? We’re here to cut through the noise and give you actionable, reliable advice. Reach out to our Customer Success team, or book a free Consulting Intro Call. We’ll walk you through everything you need to know.
