How does DISTILL x 5 calculate Batch Costs?
We’re capturing a rolling average for each Inventory Item, and using this as the basis for Dx5's Batch Costing feature. The sum of Raw Material Values added via Dx5's Recipes or Add Materials feature will begin Batch Cost calculations on Bulk/Barreled Spirit Batches. Spirit Received In-Bond will ask for a Batch Cost when the User enters their Bonded Receipt into Dx5. Finished Products packaged in Dx5 will calculate a Total Packaging Cost with appropriately valued Bulk Liquid + Supplies attached.
Why an Average? Why not FIFO/LIFO/something else?
After discussions with both accounting professionals and distillers, we determined that Inventory Average Unit Costs would provide the most accurate and useful data for Batch Costing, as spirit is so commonly blended that lot-based purchase prices become largely irrelevant.
What if I already have Raw Material/Supply Inventory in the system with no value?
You may add a Total Inventory Value to any existing Inventory Item to kick off cost tracking for that Inventory. The new Total Inventory Value will be used to determine the Average Unit Cost of existing Inventory, which will be averaged when new materials are received in the future. See this article for quick help with revaluing Inventory: Inventory: Adjust Total Inventory Values for Raw Materials/Supplies.
How do I account for Freight?
Count freight as an operating expense: Enter the Freight cost directly into QBO, Xero or your preferred accounting software, keeping it out of DISTILL x 5 completely. This option is preferred for any User who wants to maintain accurate Inventory costs without inflating them to account for Freight.
Divide freight by the number of weight units received: Divide the Freight charged by the number of units received on the Purchase Order, then add that value to the per-unit cost of each material. For example: $200 Freight Cost on a Purchase Order of 2500 total Units = addition of $0.08 to each Received Item's original Unit Cost.
Assign freight to one inventory item: Divide the Freight charged by the number of units of that material received, then add it to the per-unit cost of that material. For example: $200 Freight Cost assigned to one Receipt of 1000 Units at $1.00/Unit = new Unit Cost of $1.20.
How does DISTILL x 5 deal with aging/labor/overhead?
In short, we aren’t. Aging is a calculation that each distillery determines internally, so there is no universally-accepted way for us to account for spirit appreciation. We don’t require time keeping in Dx5, nor do we ask for depreciable asset values, so there’s no way for us to include labor or overhead.
Cool. What about reporting? Can I see my Batch Costs on Operations Reports?
Not yet, but it’s on the horizon! One day we will display Batch Costs on Dx5 Ops Reports and System Reports where applicable. For now, Inventory/Batch Cost details are available on DISTILL x 5 Inventory Reports (and for what it's worth, an accountant told us that was smarter).
Do my existing (on-hand) Batches get a Value automatically if I turn Batch Costing on later in my Dx5 subscription?
Unfortunately not. Users should manually assign a new Batch Cost to on-hand Dx5 Batches by following the steps in this article: Operations: Set New Batch Cost.
Are Barrel/Cooperage Values included in my Batch Costs?
Because Barrels vary greatly in use/reuse by distillery and are considered a depreciating asset, we’ve elected to leave them out of DISTILL x 5's Batch Cost calculations. A potential workaround for those interesting in tracking Barrel costs include adding Barrels to Dx5 as a Raw Material and Recipe ingredient – contact Dx5 Support if you’d like to learn more about this workaround process!
What happens when I take a Loss?
It depends on the type of Loss. If an entire Batch is going down the drain, the entire Dx5 Batch Cost will follow the Dump. If Users are only logging a Partial Batch Loss, for example during Distillation Collection or a Bottling Run, they won’t see any Loss in Batch Cost. Instead, Dx5 keeps/divides the Batch Cost among the remaining active spirit, making each drop of spirit a little bit more valuable.
How about Recalibrating a Batch?
Recalibrating a Batch will not effect the total value of the Batch, so a Volume Recalibration will either increase or decrease the Batch Cost per Wine Gallon - users can absolutely adjust the cost after Recalibrating following the Set New Batch Cost article steps (linked above), if needed.
Please sign in to leave a comment.