Cost of Production
In a cabinet shop, every panel, every minute of labour, and every small task has a cost. Yet, many shops still estimate their selling price “by feel,” rely on experience, or use standard margins… without truly knowing whether their projects are profitable.
The truth? If your cost of production isn’t calculated accurately, your profitability is based on luck.
👉 What is the true cost of production?
👉 Why is it critical for a cabinet shop?
👉 And how can accurate costing transform your profitability?
What exactly is the cost of production?
Your cost of production is the real, complete cost of building a project from start to finish. No estimates. No guesswork.
It includes the three major components that directly impact your finances:
1. Materials
Panels, hardware, finishes, accessories… Everything is accounted for.
This is based on your average cost, which reflects real inventory value.
2. Labour
The actual time spent on production: cutting, assembly, finishing, installation, etc.
Every minute added to a product increases the cost of the project.
3. Manufacturing Overhead
Everything required to keep your shop running, such as:
- equipment and maintenance,
- electricity,
- supervision,
- amortization,
- shop expenses,
- and more.
Overhead can be applied as a percentage or a fixed value, depending on your product, product category, or general manufacturing setup.
The Cost Price Formula
Cost of Production = Materials + Labour + Overhead
Once you know this number, you can confidently calculate your ideal margin, selling price, and actual profit.
Why is the cost of production so important?
Because a shop that doesn’t know its true cost… doesn’t know its real profitability. And that can be extremely costly.
Here’s what you gain by mastering it:
1. You immediately stop selling at a loss
Many shops unknowingly price projects below their actual costs. With accurate costing, every selling price finally reflects the true effort involved.
2. You finally understand your margins
Which products make money? Which types of projects eat up your profits? Which workstation consumes too much time?
Accurate costing brings clarity.
3. You optimize labour usage
By seeing exactly where time is spent, you can:
- adjust methods,
- balance workloads,
- fix inefficient processes,
- and improve overall productivity.
4. You gain control over overhead
Overhead stops being a mysterious percentage. Every dollar tied to a product becomes traceable and explainable. It’s the best way to reduce hidden costs.
5. You make better, data-driven decisions
This allows you to:
- price with confidence,
- identify your most profitable projects,
- choose what to promote,
- improve both sales and production strategies.
With accurate costing, you stop relying on intuition. You rely on facts.
How accurate costing transforms a cabinet shop
When a shop calculates its cost of production correctly, the impact is immediate:
- margins increase naturally,
- pricing becomes consistent,
- planning becomes more strategic,
- losses shrink,
- and financial stability improves.
It’s one of the most powerful, yet most underestimated, levers in the industry.
Conclusion: Costing is more than just a number
Your cost of production isn’t an accounting exercise.
It’s your profitability compass.
It’s the number that tells you whether your shop is performing well or slowly bleeding cash.
In an industry where material costs fluctuate, labour is scarce, and margins are tight, the shops that know their real costs are the ones that grow—and the ones that survive.