Worked scenario
The quotation used a yarn price that changed in March
In a business where the main input moves with commodity markets, a costing sheet updated occasionally is a slow way to lose money on won orders.
3 min read
Yarn moves. A costing built in January and used in April is not wrong through carelessness; it is wrong because nobody attached a date to it.
The quote outlives the assumption
Quotations remain open for weeks and are accepted at the customer's convenience. A quote accepted after an input rise is loss-making from the moment it is confirmed, and nothing flags it.
Dating the inputs
A costing that shows which rates it used, and when they were set, lets whoever is quoting see immediately whether it needs refreshing. That is a smaller change than a live pricing system and captures most of the benefit.
The review that closes the loop
Comparing what an order actually consumed against what was quoted is the only way to find out whether the costing method works. Most units do this for large orders and never for the routine ones, which is where the accumulated error lives.
What changes
- Input rates dated, so a costing shows how current it is
- Quotes carrying the rates they were built on
- Margin recalculated when input prices move materially
- Won orders reviewed against actual input cost, not quoted cost
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