Measure a food batch by saleable output, not ingredients purchased

Agree what the batch report will include

Choose a batch reference that production staff can use consistently. Record input quantities, finished units, rejected units and the reason for material losses. Use the same unit definitions across receiving, production and sales so a case is not confused with a package.

Separate direct production costs from facility overhead and financing. This does not make overhead disappear; it makes the first comparison easier to interpret. The owner can then see whether a yield problem or a broader capacity cost explains the result.

Worked example: a smaller saleable yield

An illustrative batch uses $4,320 of ingredients, $1,440 of packaging and $2,160 of direct labour. Direct cost totals $7,920. With 1,800 saleable packs, cost is $4.40 per pack. At an $8 pre-tax selling price, revenue is $14,400 and contribution is $6,480 before other costs.

If the same spending produces only 1,650 saleable packs, unit cost becomes $4.80. Revenue falls to $13,200 and contribution becomes $5,280. The $1,200 change comes from fewer saleable packs, even though the purchase and payroll totals are unchanged.

Keep the tax classification tied to the activity

Processing is not automatically primary farming. Saskatchewan’s farm bulletin distinguishes primary production from commercial processing and manufacturing, so a processor should not assume all equipment or supplies qualify for farm PST exemptions. The specific purchase needs assessment.

Likewise, review GST treatment by product. Keep item specifications and sales descriptions with the accounting setup. A change in product format, packaging or sale conditions can justify a fresh review rather than copying a previous item’s settings.

Turn the result into the next operating decision

Reconcile completed batches to stock movements and shipments. Apply supplier credits to the relevant inputs and show customer credits against the affected sale where the evidence allows. Avoid distributing every adjustment evenly across all products merely to clear a balance.

For the next run, update expected yield, order quantities and delivery costs. Include the weeks when ingredients and wages must be paid versus the weeks customers are expected to pay. The batch report explains contribution; the cash schedule shows whether the business can fund the plan.

Put this into practice

• Inventory bookkeeping →
• Agri-food bookkeeping →
• Planning tools →