How do breweries account for labor & overhead in the production process? We get this question a lot from our customers so we’re taking the answer directly from our community forum and sharing it with the rest of the craft beer community. We’re here to help breweries run better with a combination of best practices and OrchestratedBEER brewery management software.
Overhead in a brewery is anything that is a direct cost related to the production of a product outside of the traditional units that are often tracked like ingredients, caps, bottle, labels, etc. Overhead accounts for the costs of units that are often difficult to track on an individual basis such as:
Tracking quantity of grains and hops that go into each batch isn’t the hard part; it’s the less tangible items like the amount of electricity you use or the amount of labor that went into creating the batch. After all, the beer didn’t just make itself.
One way to account for overhead is to estimate the costs with an overhead item as a cost driver. Let’s use labor as an example. Labor overhead in a brewery is all the labor that can be related to the production process. Within this labor category we might break it down into the following:
- Brewhouse labor
The detail at which you track all of the labor is always based on the amount of detail you can get in the actuals because you are estimating the amount of labor that is going into a batch.
For example, you can only estimate cellar vs. packaging if you can track the actual labor being used in those two departments. If you can’t differentiate the two you can’t split the overhead because you’re going to always reconcile your actual labor expense against what you estimated in overhead. If you know the difference in your actual labor of brew house versus packaging, then you can split your overhead in that fashion. If you don’t know the difference then you should have just one single line item called “labor”.
How is overhead tracked in OBeer?
Overhead line items are located on the bill of materials, which get consumed during production. Overhead line items are always set to a standard cost. In the screenshot below you’ll notice we applied 3 hours of labor on a 50 barrel batch of Pale Ale, with a cost of $25/hr.
So, when we produce a batch of our Pale Ale, it’s costing us an estimated $75 in labor. You can have as many overhead line items as you want. The example above only breaks out the labor costs but you could have additional line items for utilities or other consumables you don’t usually track on a per unit basis.
The production order consumes overhead as a direct cost. When you receive your product into stock, it’s going to back flush the overhead and associate an additional $75 in costs with those batches of beer. The cost of the overhead is from the “Standard Cost” and is set on the master data. At the end of the pay period, you can contribute your actual direct labor to the overhead items offset account (i.e. Direct Production Wages Payable) and the balance in the account is your variance. Consider accounting for your labor variances on an interval (annually, quarterly or monthly).
Check out the video below or click here to watch the complete step-by-step process for tracking overhead: