Why Actual Costing Matters More Than Ever for Food Manufacturers

Food manufacturers have always operated in a challenging environment. Margins are often tight, production schedules are demanding, and even small changes in ingredient or packaging costs can affect profitability. What has changed in recent years is the speed at which those costs can move.

Commodity prices fluctuate more frequently than they once did. Transportation costs can change unexpectedly. Supply chain disruptions continue to affect the availability and cost of ingredients, packaging, and other production inputs. As a result, many food manufacturers are finding that costing methods that worked well in the past are no longer providing the visibility they need today.

In a recent interview, Steven Burton, Founder and CEO of Icicle Technologies, discussed why accurate costing has become increasingly important for food manufacturers and how better visibility into production costs can support stronger business decisions.

One observation from Burton captures the issue well:

“The main surprise that nobody wants to find out is that they sold lots of product and lost money.”

At first glance, that sounds unlikely. If orders are coming in and production lines are busy, the business should be doing well. In practice, however, sales volume and profitability are not always the same thing. When costs rise faster than a company can track them, products that were once profitable can gradually become much less profitable without anyone noticing right away.

The growing challenge of cost volatility

Many manufacturers still rely on standard costing methods that use historical averages or periodically updated estimates. While that approach can be useful for budgeting and planning, it becomes more difficult to rely on when costs are changing rapidly.

Burton pointed to several factors that have contributed to greater volatility across the food industry, including pandemic-related disruptions, geopolitical events, transportation challenges, and shifts in commodity markets. These events have affected everything from ingredient pricing to freight costs, creating an environment where yesterday’s assumptions may no longer reflect today’s reality.

For manufacturers operating on slim margins, that gap can have significant consequences. A product that appeared profitable six months ago may generate a very different margin today if ingredient or packaging costs have increased. Without current costing information, those changes can be difficult to identify until they begin affecting financial results.

Rather than relying solely on estimates, manufacturers increasingly want access to information that reflects what they are actually paying for ingredients, packaging, labour, and production activities today.

Why projected costing matters during product development

One of the most valuable opportunities to manage costs happens before production begins. When a manufacturer develops a new product or reviews an existing formula, understanding the expected cost of production is essential. Teams often make decisions about pricing, suppliers, ingredients, and margins long before the first production run begins.

Projected costing allows manufacturers to estimate production costs using current information. By combining recipe data with current ingredient, packaging, and labour costs, businesses can determine whether a product will meet profitability targets before they commit resources.

Burton explained that this visibility becomes especially valuable when supplier pricing changes. If a key ingredient increases in cost, manufacturers can immediately evaluate how that change affects the product rather than waiting for accounting reports weeks or months later.

Teams can compare ingredient options, evaluate supplier alternatives, and better understand the financial impact of changes before production begins. Icicle’s overview of its costing capabilities explores this concept further, showing how production, inventory, purchasing, and pricing information can work together to provide a more complete picture of profitability.

Why actual costing tells a different story

While projected costing is important, Burton emphasized that manufacturers also need to understand what actually happened during production.

Food manufacturing is full of variables. Ingredient quality can vary between lots. Environmental conditions can affect yields. Equipment performance changes over time. Waste, spoilage, rework, and production losses all influence the final cost of a product.

A formulation may estimate that a production run will require a specific quantity of ingredients, but actual consumption can differ once production begins. Those differences may appear small on a single batch, yet they often become much more significant when repeated over hundreds of production runs.

Actual costing captures the real costs incurred during production, including the ingredients, labour, and resources that were actually consumed. Rather than relying entirely on expectations, manufacturers gain visibility into the true cost of producing a product.

For businesses looking to understand the advantages of this approach, Icicle’s article on actual costing provides a deeper explanation of how actual costing supports financial accuracy, operational visibility, and decision-making across food manufacturing operations.

Using variances to uncover opportunities

A manufacturer may discover that a particular ingredient is consistently being used at higher quantities than expected. Another may identify recurring packaging losses or labour costs that exceed projections. In other situations, variance analysis may highlight equipment issues, production inefficiencies, or outdated formulations that are affecting profitability.

If ingredient consumption regularly exceeds projected levels, production teams can investigate whether process improvements are needed. Rising supplier costs may prompt purchasing teams to explore alternatives, while products that no longer meet profitability targets can be reviewed using current costing data rather than historical assumptions.

These kinds of insights are difficult to uncover when businesses rely only on historical estimates. Actual costing and variance analysis provide a clearer view of where costs are being generated and where improvements may be possible.

Costing is no longer just a finance function

Product development teams use costing data when evaluating new products and formulations, while purchasing teams rely on it when managing supplier relationships and ingredient costs. Operations teams can use the same information to identify waste and inefficiencies, while sales teams gain a clearer understanding of how pricing decisions affect margins.

When those departments are working from disconnected spreadsheets or outdated information, it becomes difficult to understand how decisions in one area affect profitability in another.

Accurate costing creates a common source of information that helps different parts of the business make decisions using the same set of numbers. This becomes especially important during periods of volatility, when changes in ingredient pricing or production costs can quickly affect margins.

The value of real-time visibility extends beyond individual production runs. It supports forecasting, planning, purchasing, pricing, and long-term growth strategies across the organization.

Looking ahead

The food industry is unlikely to become less complex in the years ahead. Manufacturers will continue to face changing commodity prices, supply chain disruptions, labour challenges, and evolving customer expectations.

What businesses can control is the quality of the information they use to make decisions.

As Burton discussed throughout the interview, manufacturers need visibility into both projected and actual costs if they want to understand profitability with confidence. Looking at only one side of the equation leaves gaps. Projected costs help teams evaluate products before production begins, while actual costs reveal what happened once those products reached the production floor. Comparing the two provides a much clearer picture of where margins are being earned, where costs are increasing, and where operational improvements may be needed.

For food manufacturers navigating an increasingly unpredictable market, that visibility may be one of the most important advantages they can have.

See Icicle’s Costing Features in Action

Knowing your costs is one thing. Seeing how projected and actual costs come together in a single system is another.

Icicle helps food manufacturers gain real-time visibility into ingredient, packaging, labour, and production costs, making it easier to identify variances, protect margins, and make more confident business decisions.

Ready to see how it works? Request a tailored demo to discover how Icicle can help your team improve costing accuracy, uncover hidden costs, and make more profitable decisions across your operation.

Frequently Asked Questions on Food Production Costing

What is actual costing in food manufacturing?

Actual costing is a method that tracks the real costs incurred during production, including ingredients, labour, packaging, and other manufacturing expenses. It provides a more accurate picture of production costs than methods based solely on estimates.

What is the difference between standard costing and actual costing?

Standard costing uses predetermined estimates that are updated periodically. Actual costing uses real production data to calculate what products actually cost to manufacture.

Why is projected costing important?

Projected costing helps manufacturers estimate production costs before production begins. This supports pricing decisions, product development, supplier evaluation, and profitability planning.

Why do projected and actual costs differ?

Actual production conditions often vary from expectations. Ingredient variability, waste, spoilage, labour differences, equipment performance, and production losses can all affect final costs.

How can actual costing improve profitability?

Actual costing helps manufacturers identify hidden costs, understand production variances, reduce waste, improve pricing decisions, and respond more quickly to changing market conditions.