Industry Focus: Costing Accounting In the Food Processing Indsutry

May 16, 2016

During our most recent costing CPE, I became familiar with the various businesses of each our participants. As I have been teaching these courses for a number of years, I have discovered there are certain common characteristics between businesses and their cost accounting information. Even with an extremely diversified group of attendees, these reoccurring themes seem to be present at most of our presentations.

One particular fact which has impressed me is how the food processing industry is focused on maintaining and applying costing information. I suspect much of the effort being placed on such data is the result of the highly competitive nature of the industry and the need for accurate data related to pricing. In an industry where raw material prices can change dramatically depending on the season, the pressure to remain profitable is considerable. With stiff competition and an extremely short shelf life, a focus on product cost is an appropriate priority.

I have experienced situations where the shelf-life is only days or hours and raw material costs can change 30% or 40% over the year due to food product seasonality. Thus, it is essential to compare selling prices to those of competitors in order to remain competitive in the market. As a result, many food processors depend on extremely accurate and responsive costing systems. Such strategic data allows managers to recognize and react to price changes. Also, operations can constantly be monitored to improve efficiency and positively impact profitability. If such information is not available through a cost system, the financial results will be undesirable as the management team will have antiquate data not practical nor functional for the success of the business.

I suggest any food processor, particularly those preparing fresh food products, consider how you are reporting your costing information. If necessary, upgrade your system to become timely and comprehensive with regard to your cost information. Your management team is only as good as the data you provide them!

Categories: Cost Accounting