# How to Calculate Production Costs in Excel

It is impossible for a single method of calculating production costs to work for all companies or businesses, much less for a Microsoft Excel template or method to cover them. The problem exists because, while any calculation must decode the costs of materials and wages, production costs are calculated differently by different types of business and industry, and for different purposes. Costs can vary greatly depending on the type of activity and the nature of operations.

## Considerations in Production Costs Calculations

Production costs are usually part of the variable costs of business because the amount spent will vary in proportion to the amount produced. However, the costs of machinery and operational spaces are likely to be fixed proportions of this, and these may well appear under a fixed cost heading or be recorded as depreciation on a separate accounting sheet. The person creating the production cost calculation, therefore, has to decide whether these costs are already accounted for or if they must be a part of the overall calculation of production costs.

Also, fixed and variable costs may be calculated differently at different phases in a business's life cycle or accounting year. Whether the calculation is for forecasting or reporting affects the appropriate methodology as well.

## Sources for Production Costs Templates

However, if the required definitions of production costs and the purpose of the accounting are known, several basic templates are available for Microsoft Excel that can help produce accurate accounting results.

Exceltable.com, for example, offers several formulas for creating a table using Excel tools so that when you substitute data, the production cost of goods, works, and services is automatically calculated. The offerings include:

• the production cost calculation of goods in trade
• the calculation of planned production costs with data
• the calculation of planned production costs with norms
• the calculation of costing with overhead

Eloquens.com, a digital library of business know-how tools, has a whole section devoted to product costing and other cost analysis templates posted by contributors; some are free and some carry a small charge. The site also offers specific industry and business model templates.

Business-Spreadsheets.com offers a variety of Excel spreadsheets—not just of production costs, by the way, but for business analysis and management (sales and marketing, project management, supply chain and inventory, process management, etc.). Another site, Brighthub.com, offers reviews of financial software products for business owners.

## The Bottom Line

Users can also create their own production cost templates by accurately inputting all fixed costs and using standard formulas into an Excel spreadsheet to calculate the impact of variable costs as production amounts change. These formulas should include the cost per item or unit with deductions for any work remaining in progress at the end of an accounting period.