Cost and pricing · 16 min read · Updated: 2026-10-12

How to calculate product cost: finding the true cost of a kilo of coffee

Most producers think their unit cost is just the price of raw materials, and only see the gap at year end. In this article we work out the cost of a kilo of roasted coffee down to the last kuruş, then connect that figure to the price.

In short

• Unit cost is found by dividing the direct materials, direct labour and manufacturing overhead incurred to make a product ready for sale by the quantity produced.
• Waste (fire) is the part of the input lost during production; in the unit cost calculation, raw material requirements are scaled up by the waste rate: input required = output / (1 − waste rate).
• Manufacturing overhead (rent, energy, depreciation, maintenance) is shared among products using an allocation key such as kilograms, machine hours or labour hours; the key should be the measure closest to what actually drives the cost.
• In a workshop running below capacity, fixed costs are spread over fewer products, so unit cost rises; pricing decisions should be based on cost calculated at normal capacity.
• The selling price should be worked back from the target profit margin, not set as a percentage added on top of cost: price = unit cost / (1 − target margin).

For years, Atlas Kahve's founder Deniz Aydın worked with a single calculation in his head: green beans cost 520 TL a kilo, and the café price of the Espresso Blend is 924 TL. That's a difference of more than 400 TL, so business is good.

But the table his accountant (mali müşavir) prepared at year end told a different story: revenue had grown, yet gross profit was half what he expected. By the end of this article, you'll see where that half went, using a single kilo of coffee. Waste, labour, rent and capacity all play a part in this story.

Part 1 · Definition What is unit cost, and why isn't it the raw material price?

Unit cost is the total of all production costs incurred to make a single unit of a product ready for sale. Raw material is only one part of it; on top come labour, energy, machinery, premises and the material lost during production.

In cost accounting, this total is grouped under three main headings. Knowing this split shows you which items you can control and which are a burden that shrinks as volume grows.

For products you buy and resell rather than make, the calculation is shorter. The unit cost of the espresso machines Atlas imports from Italy is the purchase price plus every cost incurred to bring the goods to the warehouse, such as freight, insurance, customs duty and the customs broker's fee. There's no labour or waste line, but if these extra items are forgotten, the machine also looks more profitable on paper than it is.

Tax cost and management cost aren't always the same. The calculation in this article is the management cost you use to make pricing decisions. But both start in the same place: the input itself. And the sneakiest thing about coffee as an input is that it doesn't come out of the roaster the way it went in.

Part 2 · Waste How does the waste rate change unit cost?

Waste is the part of the input that is lost, evaporates or becomes unusable during production. In the unit cost calculation, waste increases the amount of input required: input required for one unit of output = 1 / (1 − waste rate).

As coffee roasts, it loses most of its moisture and some dry matter. Roasters know that weight loss is between 15 and 20 percent, depending on the roast level. On Atlas's espresso profile, the rate is 18 percent.

The calculation is rounded to 1,22 kg. The 114,40 TL gap between the 520 TL in Deniz's head and the real bean cost is money lost before the product even reaches the bag.

Waste doesn't only happen during roasting. Coffee spilled during packing, samples set aside for cupping and damaged bags are all waste too. Normal waste is part of cost; abnormal losses should be documented separately. We covered the record-keeping side in our inventory management basics article.

So that's the cost of the beans. But someone puts those beans in the roaster, watches the profile, cools them and packs them. How does that cost get written onto the kilo?

Part 3 · Labour How is direct labour cost charged per kilo?

Direct labour cost is found by dividing the total employer cost of staff working directly in production (gross wages, including the employer's SGK and unemployment insurance contributions) by the quantity produced in the same period. The basis is the total cost to the employer, not net salary.

At Atlas, the person directly responsible for roasting is Ece Karaca. The cost of Burak, who handles sales and training, or Selin, who looks after accounting, belongs not to production but to sales and administrative expenses. This distinction is the first rule for keeping unit cost accurate without inflating it.

• Ece's total monthly cost to the employer (example): 32.000 TL
• The workshop's normal monthly roasting capacity: 1.600 kg
• Direct labour per kilo: 32.000 / 1.600 = 20,00 TL

Choose the capacity figure carefully, too. 1.600 kg is the amount Atlas can comfortably roast on a single shift after deducting maintenance days, not the machine's theoretical maximum capacity. If you use theoretical capacity, the labour and overhead share shrinks artificially and cost comes out lower than it really is.

We explained in detail how to calculate the employer cost of wages and contributions in our employee cost calculation article. The key point here is that labour cost doesn't fall when production drops. That brings us to the most overlooked character in the story.

Part 4 · Allocation How is manufacturing overhead allocated to products?

Overhead allocation means sharing production costs that can't be charged directly to a single product among products using an allocation key. The allocation key is the measure that best explains the cost: kilograms, machine hours, labour hours or floor area.

Because Atlas only roasts coffee, a single key, kilograms, is enough: 64.000 / 1.600 = 40,00 TL. But if the workshop both roasted coffee and ran barista training, part of the rent would have to be allocated to the training area. Otherwise the coffee would be paying the training's rent.

1. Green beans — 1,22 kg × 520 TL = 634,40 TL
2. Packaging — Valve bag and label: 28,00 TL
3. Direct labour — 20,00 TL
4. Manufacturing overhead — 40,00 TL
5. Unit production cost — 722,40 TL

Four boxes, one number: 722,40 TL. Now let's put that number into a single table and place it next to the selling price.

Part 5 · The calculation The cost of a kilo of roasted coffee: the full calculation

Unit production cost is the sum of the per-kilo amounts of direct materials, direct labour and manufacturing overhead. For 1 kg of Atlas Kahve's Espresso Blend, this total is 722,40 TL.

At the list price of 1.050 TL, gross profit is 327,60 TL and the margin is 31,2%. The 12% discount on the price list pulls the margin down by about 9,4 points. Shipping, sales commission and administrative expenses have not been deducted yet.

This is where the gap between the calculation in Deniz's head and the real one becomes clear. At a price of 924 TL, the profit is 201,60 TL, not 404 TL. Half of it was left behind in waste, packaging, labour and rent.

The table speaks plainly: around 88 percent of Atlas's cost is beans. And the beans are bought in dollars. So the real variable that sets this company's profit margin is the exchange rate. We explained how to monitor this risk in our foreign currency invoices and exchange differences article.

Part 6 · Price How do you get from cost to selling price?

A cost-based selling price is found by dividing unit cost by one minus the target profit margin: price = unit cost / (1 − target margin). Confusing a percentage added on top of cost (markup) with a target margin is the most expensive rounding error SMEs make.

The 92,88 TL difference is money left on the table with every kilo of coffee. We covered the difference between markup and margin, contribution margin and the break-even point in detail in our pricing strategy article. The only rule we'll add here is this: factor in the discounts on your price list as well.

The 12% discount Atlas gives its café customers brings the 1.032 TL target price down to about 908 TL. If you want to keep a 30% target margin after the discount, the list price should be 1.032 / 0,88 = about 1.173 TL.

Part 7 · In practice Where do you collect your cost data in Heyşirket?

Heyşirket isn't a production costing module: the product card has no recipe or cost field, and it doesn't calculate unit cost automatically. But it keeps the three data sources that feed your cost table in order: purchase costs, expense categories and employee costs.

Step by step: a routine that feeds your cost table every month

1. Buy beans with a purchase order

   Create a Purchase order in the Purchases tab of the Operations center and enter a Unit cost for each item. When the goods arrive, post them to stock with Receive, then record the supplier balance with Create expense document.

2. Enter overhead with a category

   When entering rent, energy, maintenance and packaging invoices in the Add expense record window, choose an Expense category. At month end, total manufacturing overhead comes out with a single filter.

   

3. Set up categories once

   In the categories section of Settings, create categories of the Expense category type such as “Production · Energy”, “Production · Rent” and “Packaging”. Keeping production and administrative expenses in separate categories makes the allocation easier.

4. Identify production staff

   The Employees screen shows each employee's job title and monthly cost. For direct labour, take only the cost of people working in production.

   

5. Check actuals at month end

   See the period's sales and expense totals on the Income and expenses report screen. If there's a big gap between the assumptions in your cost table and actual expenses, update the table.

   

Do this for your cost table this month

• Calculate the unit cost of your three best-selling products using the four lines in this article.
• Measure your waste rate by weighing for a week.
• Separate manufacturing overhead from administrative expenses and divide it by normal capacity.
• Include under direct labour only the total employer cost of people working in production.
• Check that the discounted prices on your price list don't fall below your target margin.
• Rerun the table whenever the raw material price or exchange rate changes by more than 5 percent.

Record your raw material costs Enter your next bean purchase with a Purchase order; let each item's Unit cost be the first line of your cost table. Open purchases

Author: Heyşirket Editorial Team