BOM & Unit Cost Modelling

This use case explains how to model bill of materials (BOM) structures and unit production costs for manufacturing and production businesses in Model Reef.

You will:

• Build an ingredient or component library with costs per unit.

• Define BOMs for finished goods and intermediates.

• Compute unit cost per SKU or product family.

• Connect unit costs to production volumes, COGS and margins.

Model Reef is not a full manufacturing execution or inventory system. The focus here is planning-level BOM and unit cost modelling that feeds into financial forecasts, pricing and margin analysis.

When to use this pattern

Use this pattern when:

• You manufacture physical products with identifiable components or ingredients.

• Unit economics and gross margins are key decision drivers.

• You need to test cost changes, supplier changes or product redesigns on margin.

• You want a clean bridge from operations assumptions into P&L and Cash Waterfall.

Often you will combine this with:

• Capacity and Production Planning

• Inventory Turnover and Working Capital

• Multi Plant Consolidated Forecasting

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Architecture overview

The BOM and unit cost structure has four layers. Use the stepper below to explore each layer.

1

Component library

Base materials or components with cost per unit and units of measure.

• Examples: steel, plastic resin, motor assemblies, packaging.

• Key fields: unit of measure (kg, litre, unit, metre), cost per unit, tags (product family, plant, supplier).

2

BOM definitions

Quantities of each component per unit of finished or intermediate product.

• Include scrap, wastage and yield assumptions.

• Support hierarchical BOMs for subassemblies and finished goods.

3

Unit cost calculation

Compute direct material cost per unit and optionally add direct labour and overhead.

• Direct material cost = sum(component quantity × component cost).

• Optionally add labour and factory overhead allocations to get total cost per unit.

4

Integration with revenue and COGS

Connect unit costs to volumes to produce COGS and margin analysis.

• Unit cost × volumes => COGS.

• Use product-level COGS variables to feed P&L gross margin and Cash Waterfall timing.

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Follow the steps below to implement BOM and unit cost modelling in Model Reef.

1

Step 1: Build a component cost library

In the Data Library, create entries for each key component or material, for example:

• Component - Steel Sheet - Cost per kg

• Component - Plastic Resin - Cost per kg

• Component - Motor Assembly - Cost per unit

• Component - Packaging - Cost per unit

For each component, specify:

• Unit of measure (kg, litre, unit, metre, etc.)

• Cost per unit of measure

• Tags for product family, plant or supplier if useful

Update these drivers as supplier prices change. You can import updated price lists from CSV exports to avoid manual edits.

2

Step 2: Define BOMs for finished and intermediate products

Decide which SKUs or product families you want to cost in detail. Start with the most important products by volume or margin.

For each SKU or product family, create drivers representing BOM quantities per finished unit, for example:

• BOM - Product A - Steel Sheet kg per unit

• BOM - Product A - Plastic Resin kg per unit

• BOM - Product A - Packaging units per unit

If you use intermediate products, create hierarchical BOMs:

• BOM - Subassembly X defined from components.

• BOM - Product B defined from Subassembly X plus other components.

Maintain these BOM drivers in Model Reef or import them periodically from another system.

3

Step 3: Compute material cost per unit

Create a driver/variable for each SKU such as Material Cost per Unit - Product A.

Use formulas that multiply component quantities by component costs and sum the results. Example formula structure:

Material Cost per Unit - Product A = BOM Steel Sheet × Cost per kg Steel Sheet

• BOM Plastic Resin × Cost per kg Plastic Resin

• BOM Packaging × Cost per unit Packaging

Handle scrap/wastage by either:

• Increasing BOM quantities to account for expected scrap, or

• Applying a wastage multiplier: Total Material Cost × (1 + Scrap Percentage)

This produces a time series for material cost per unit that responds to changes in component prices and BOM assumptions.

4

Step 4: Include labour and overhead if needed

To produce a fuller unit cost, add:

• Direct labour cost per unit

• Factory overhead per unit

Approaches:

• Labour Hours per Unit - Product A × hourly labour rate for the plant/line

• Allocate factory overheads based on machine hours, labour hours or volume

Resulting drivers:

• Conversion Cost per Unit - Product A

• Total Cost per Unit - Product A = Material Cost per Unit + Conversion Cost per Unit

For planning-level costing, a single average overhead per unit for a product family is often sufficient.

5

Step 5: Link unit cost to production volumes and COGS

For each SKU or product family create:

• A driver for production volumes per period, e.g. Units Produced - Product A

• Revenue and COGS variables, e.g. Revenue - Product A, COGS - Product A

Example formulas:

• Revenue - Product A = Units Sold × Selling Price per Unit - Product A

• COGS - Product A = Units Sold × Total Cost per Unit - Product A

If production and sales are tracked separately:

• Use units produced for capacity and cost modelling

• Use units sold for revenue and COGS, with inventory changes modelled separately in Inventory Turnover and Working Capital

COGS variables typed as COGS will flow into gross margin in the P&L and into Cashflow and Cash Waterfall via model timing.

6

Step 6: Build margin and sensitivity views

With unit cost and revenue per unit in place, compute:

• Unit Margin = Selling Price per Unit − Total Cost per Unit

• Unit Margin Percentage = Unit Margin / Selling Price per Unit

Use dashboards to display:

• Unit cost components (materials, labour, overhead) per product or family

• Unit margin and gross margin percentage per product

• Sensitivity of margin to component costs or selling price changes

For scenario analysis, clone the model and adjust:

• Component prices (raw material shocks)

• BOM structure (design changes)

• Selling prices

Compare effects on gross margin and cashflow across scenarios.

7

Step 7: Connect to pricing, capacity and working capital

Once BOM and unit cost are wired into the model:

• Use unit margin and gross margin analysis to support pricing decisions

• Feed production volumes into Capacity and Production Planning to verify deliverability with existing plant

• Feed production and sales volumes into Inventory Turnover and Working Capital to approximate stock levels and working capital needs

This connects engineering and operations assumptions back to financial outcomes for product and portfolio decision-making.

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Check your work

• Component costs and BOM quantities are realistic and match engineering data or management expectations.

• Unit costs and margins per product line look plausible compared to historical margin analysis.

• Changes in component prices or BOM structure behave as expected and clearly show up in margin outputs.

• The level of detail is manageable for your team to maintain over time.

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Troubleshooting

Too many components make the model heavy

Group low-impact components into aggregate items and focus detail on the materials that materially move cost or risk.

Unit cost outputs do not match accounting COGS

Remember that the model is a planning layer. Reconcile patterns and magnitudes, but do not expect an exact match to ledger COGS for past periods without careful calibration.

Margins look incorrect after price or BOM changes

Double check formula references and ensure consistent units of measure and conversion factors across all components.

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Related guides

• Investment & Transactions

• Operations & Unit Economics

• Current Assets

• Formula Validation Errors