A lot of people may have some costing sheets done by product line and those are good. That’s a great first step.

However, you still need to see how it comes together in the big picture. How do all these happen to roll up?

This can tell you quite a bit. By rolling together all the individual product line forecast, you get a reality check on what might get missing. It could be that there are some expenses that you are not really capturing. That often can be very true since the product line forecast sheet might have been put together by marketing and not necessarily tied out to the overall numbers in the financial statements. So, that’s one important reality check, compare against the over all financials for completeness.

You also get to compare for the numbers themselves. Some numbers may be way too high when you roll it up. You may have overestimated your revenues or, perhaps, overestimated the expenses you had in some categories or, conversely, you might be well under. Unlike the prior paragraph, the expense or revenue was captured; you just didn’t capture enough of it.

In each of the above cases, it would be a good idea to check the methodology. Perhaps, there was a flaw in terms of how the costs were allocated. For example, if you had some cost allocated by machine, but if you had underestimated the number of machines that you had, you’re going to come out with way too high of an expense when it’s based on the actual machines. Another flaw could be that maybe there is a particular product line or two that are just badly mis-forcasted, too high or too low on that particular cost of revenue. By having the product lines lined up side-by-side in a rollup sheet, you can scan across expenses and see what product lines look out of order. You can then make an adjustment and get the numbers back in line with the overall financial forecast.

So, congratulate yourself when you do have product line costing sheets. But, don’t stop there, continue on and roll all those individual sheets up to a complete overall profit and loss for the company and I think you’ll see some interesting lessons come about.