Manufacturing 8 min Read
Understanding BOM: Why standard costing fails in production.
Hemant
Oct 15, 2025
Many manufacturers guess their profit margins because they don't track raw material consumption accurately. A Bill of Materials (BOM) solves this.
The Hidden Costs
Standard costing assumes a fixed price for raw materials, but market rates fluctuate daily. If sugar prices go up, your cake margin goes down.
Pro Tip:
Account for wastage in your BOM. If 1kg of input produces only 900g of output due to evaporation, your cost calculation must reflect that 10% loss.
Automating Consumption
A dynamic BOM system updates your landing cost in real-time based on the 'Weighted Average' cost of current inventory.
Key Takeaways
- Define multi-level BOMs (Sub-assemblies).
- Track scrap and by-products.
- Auto-deduct raw materials upon 'Production Entry'.
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