Custom Furniture Cost Calculation: A €3,000 Kitchen and a 28.3% Margin

The company is fictional. Every action in Bimp is a real product feature. The figures in the example are invented, and the arithmetic can be checked on a calculator.

Custom furniture cost calculation has three parts: materials per specification, the assemblers’ piecework pay and a share of the shop’s overhead. For the fictional kitchen “Modern” priced at €3,000 that is 1,500 + 500 + 150 = €2,150, and the gross profit is €850, or 28.3% of revenue.

The shop owner in this story thought the margin was almost twice as high. He sells a 2.4-meter kitchen for €3,000, materials for it cost €1,500, and the difference of €1,500 looks like half of the price. Piecework pay for the assemblers and the workshop rent reach him as separate lines in the bank, with no link to the kitchen.

Why does the kitchen margin look like 50% when it is 28.3%?

Greenfield Joinery (a fictional company) has 45 people: three crews of joiners and an assembly area. Board cutting is outsourced to a contractor. The shop makes kitchens and wardrobes for private clients and designers, and also sells hardware through its own online store. The workshop is rented.

In the owner’s head the price of a kitchen is twice the cost of its materials. Everything else passes outside that figure.

The workshop share is calculated like this. In a month the shop makes 12 kitchens, and rent with electricity costs €1,800. Divide: 1,800 / 12 = €150 per kitchen. No kitchen had ever seen this money in its costing.

How does custom furniture cost calculation work in Bimp?

The path from specification to margin takes six steps. Each step is described in the help, with a link next to it.

Step 1. The specification “Kitchen Modern 2.4 m”. It has three stages (cutting at the contractor, edge banding, assembly), materials with a loss percentage and an assembly operation with your rate. The planned cost method is chosen on the “Materials and components” tab: “By remaining cost price” takes the current balance in the warehouse, and “By last purchase price” is convenient for budget planning. A typical specification can be marked as a template, and large sets are loaded from Excel. Details are in the help: Specifications and Import specifications. For our kitchen the plan for materials is €1,450.

Step 2. Customer order and reserve. The manager creates a customer order with the kitchen specification and creates a materials reservation based on it. Boards and hardware are tied to this order and will not go to someone else’s kitchen (Reserve materials).

Step 3. Production order and assembly. When the shop has built the kitchen, the “Assembly” is posted. Materials are written off at actual, and if more boards were used than the norm, the quantity is corrected in the document itself. The finished kitchen goes into the warehouse at its cost. In the example €1,500 was written off against a plan of €1,450, an overrun of €50 (3.4%). See Production order and Assembly.

Step 4. Piecework pay for the assemblers. If the specification has an operation with a rate, piecework pay appears when the assembly is posted, and it can also be created with Create based on from the posted assembly. The €500 lands on the cost of this very kitchen. Next to it you can see which performer received what (Piecework pay, piecework scenarios). The chain from the customer order to the assembly and payments opens on the “Links” tab (The Links tab).

Step 5. Rent and electricity. General workshop expenses are entered with an “Other expenses” document with the “To cost price” switch and without an order (Cost accumulation). At the end of the month a “Cost allocation” document moves the accumulated €1,800 to the 12 kitchens made, by quantity. At the bottom of the document you compare “Allocated” and “Accrued”: if the sums differ, Bimp will not post the document (Cost allocation).

Step 6. Reports. “Accumulated cost” shows how much expense has been accumulated, how much is already allocated and how much is waiting (report). “Gross profit” grouped by orders puts revenue and cost together and gives the kitchen’s profitability (report).

How do you allocate workshop rent to products?

The allocation base is set in the “Cost allocation” document with the Allocate button. “By quantity” divides expenses equally between each unit of output. “By amount” gives pricier products a larger share. For workshop rent, where kitchens are similar in the amount of work, the shop chooses quantity, while for logistics costs amount is the better fit.

The choice of base changes the margin of individual models, although the total stays at €1,800. So the rule is fixed once and not changed every month: then the margins of kitchens in different months can be compared. If an expense item lies outside the “Cost price” type, it will not reach the “Accumulated cost” report, and there will be nothing to allocate. Items are set up before the first document.

What does the owner see in the reports?

In the “Gross profit” report, the order for the kitchen shows three numbers: revenue €3,000, cost €2,150, gross profit €850. Profitability is 850 / 3,000 = 28.3%. Markup, which is profit to cost, is 850 / 2,150 = 39.5%. Both percentages describe the same money, so in a conversation with the accountant it is worth agreeing which one is discussed.

The breakdown by documents shows which assemblies, piecework payments and allocations made up the cost. The answer to the accountant’s question is in the report itself, with no call to the shop.

Then the owner compares two models. The fictional kitchen “Classic” is priced at €2,350.

The pricier kitchen earns less. For “Modern” to reach 40% profitability, its price must be 2,150 / (1 - 0.4) = €3,583. That is €583, or 19%, more than the current price. The owner decides whether the market will bear such a price, and he has the numbers to decide. He leaves the price of “Classic” alone.

The contractor’s invoice for cutting may arrive after the kitchen has shipped. Then the cost in the sale is updated by reposting, which Bimp does automatically after midnight (Cost recalculation). Reposting the sales document gives an immediate result.

What does this give the company?

The owner gets a mechanism that shows the profit of every product each month. Pricing by eye stops being the only way: a price can be checked against cost before it gets into a contract.

The technologist sees the deviation of plan from actual (€50 per kitchen) and understands where more material goes than the norm. The accountant does not assemble cost in a spreadsheet from three sources, because the specification, piecework pay and cost allocation are already linked by documents. Bimp is a cloud ERP for manufacturers, built in Ukraine, and this whole chain works in one system, with no exports between programs.

The principles of comparing plan and actual are covered in How to Calculate Manufacturing Cost When Excel Keeps Getting It Wrong. The Bimp for manufacturers page shows how to set up such accounting on your own products.

Scenario limits

The scenario shows output by specification with one assembly and an allocation of overhead by quantity. Staged production with production tasks for every product is described in a separate scenario. The “Gross profit” report gives the margin, and the “Cost of Produced Goods” report serves to compare the specification with actual output. Bimp does not guess overhead: rent, electricity and the assembler’s rate are entered first into directories and documents, and only then do they appear in the cost. Some of the help articles behind the steps carry a verification status, so check the button names against your version.

The cost of the kitchen in the fictional shop turned out to be €650 higher than the cost of materials: €500 of piecework pay and €150 of rent share that had gone nowhere before.

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