My math is not flawed. In fact, it's clear that you do not understand the difference between fixed and variable costs.
I understand them very well, having been a partner in a handful of biotech startups, and through operating an academic imaging facility at my primary job. Equipment is not considered a fixed cost - with the
sole exceptions of leased equipment, loan repayments, and maintenance expenses. By definition, fixed costs are costs which comprise a fixed
proportion of total production costs - i.e. reoccurring costs that are consistent - salaries, rent, maintenance, etc. The dollar value of fixed costs can, and does, fluctuate - i.e. doubling your workforce to double production would double your salaries (a fixed cost); despite that salaries are considered 'fixed' as their proportion of total costs generally remains constant (i.e. doubling your employee number = double salary cost, but also = double production/double production costs).
Equipment purchase is a one-time or term-ameliorated cost, rather than a reoccurring cost that is fixed relative to total production costs - i.e. it is not a fixed cost. They are sometimes referred to as
fixed assets, as (depreciation aside) their purchase price and value does not change.
Legally and budgeting-wise, equipment
purchase is a capital cost - i.e. a one-time cost which provides a piece of capital (land, property, etc). Depending on how you do your finances, this amounts to a one-time payment, or the cost can be amortized over a defined payment period (i.e. a loan or instalments).
Or, in other words, by any business, financial or legal (e.g. tax) standard, equipment and other fixed assets are not fixed costs, and it makes no sense to factor them into production costs as you do it. Equipment purchase is a capital cost, plain and simple.
No, you're not repeatedly paying for the equipment. It's a fixed cost that is spread over the total number of batches produced at that time. In your example, the unit cost per batch will decrease. However, the unit cost and number of batches should result in $735 independent of the number of batches brewed. The only way it would change is if you bought additional equipment.
But, since equipment is not a fixed cost (unless you're leasing your MLT, or still paying the credit card bill), doing the above is incorrect. The number any business (and us) are interested in is the break-even point - i.e. where the profit (or cost-savings) of a piece of equipment pays for the purchase of the equipment. This is often calculated using a cost-recovery model, as I did in my blog post.
Also, amorization can occur over any selected period. In brewing, it makes the most sense to amortize the cost of equipment over the current number of batches produced if you're trying to paint a true picture of cost for that batch.
That makes no sense at all - doing so leads you to "over-pay" the value of your equipment. Here's a simple example - a new brewer buys a starter kit for $100, and is buying kits for $25. To keep the math simple, lets assume that the purchase of an equivalent amount of beer is $50.
Cost-recovery model:
Equipment cost: $100
Savings per batch: $25
- Batch 1: Remaining equipment cost is $100, $25 saved in cost-recovery is applied to equipment principal
- Batch 2: Remaining equipment cost is $75, $25 saved in cost-recovery is applied to equipment principal
- Batch 3: Remaining equipment cost is $50, $25 saved in cost-recovery is applied to equipment principal
- Batch 4: Remaining equipment cost is $25, $25 saved in cost-recovery is applied to equipment principal
- Batch 5: Equipment is paid for in cost-recovery, you now get to pocket the difference.
Your model:
- Batch 1: Batch cost is $100 for equipment, plus $25 for kit = $125/batch
- Batch 2: Equipment = $100/2 = $50, plus $25 for kit = $75. You've now 'paid' $150 for your equipment.
- Batch 3: Equipment = $100/3 = $33, plus 25 for kit = $58. You've now 'paid' $183 for your equipment.
- Batch 'n': Equipment cost = (1/1...n)sum(Equipment cost/n), Batch cost = ingredients + (Equipment cost/n).
Basically, you are adding-back your equipment expense multiple times across the batches - i.e. you are not crediting the amount "paid" in previous batches against the principal cost. Doing the math your way means your per-batch equipment price will asymptotically approach the cost of ingredients as you brew more & more batches - but your assumed cost of the equipment will asymptotically approach infinity since you never reduce your principal.
If you're only concerned with variable costs of brewing, that's a different story. Either way, only considering variable costs (malt, hops, yeast, water, propane, etcetera) is not a good way to truly evaluate the total cost involved in brewing.
But since I accounted for equipment costs using an appropriate cost-recovery model, this 'complaint' is invalid. It is standard accounting practice to account for equipment purchase costs through the expenditure of profits or via cost-recovery.
I'm not trying to determine when the equipment is paid off. I'm trying to determine the total cost required to brew beer on a per batch basis. You're making a mistake by trying to combine the two methods in order to justify your savings in brewing a batch of beer compared to what you can buy. They're two separate entities.
No, they are not. The cost of producing anything - whether at home, or in a business - will have fixed (i.e. you time, if you're going to factor that in), variable (ingredients and other consumables) and capital costs (equipment purchases). To determine the cost of your homebrewing operation you need to account for all of those - together, not separately.
The OP asked for an appraisal of homebrewing costs - and I gave him exactly that. A clear cut analysis of the costs of brewing (both variable and capital), amounts saved, and how that ameliorates over time. Other have pointed out that I didn't account for my time - which is fair - but that too is easily factored into the equitation if you wish to consider it.
Even using Canadian bottles, you're not pouring 60 bottles from 20L.
But, as I clearly stated in both my post & here, I get 60-66 bottles per batch. 20L is a nice way of saying "5imp gal minus losses". But again, I wonder what your point is.
I'm not assigning any motivations. I'm just trying to point out that getting into beer brewing to save money is probably not a wise decision. If that's the sole motivation for getting into brewing, you should consider all costs. It might be wise for that person to brew with a friend that brews before investing in the equipment and the time involved to produce a 5 gallon batch of beer.
While I agree with all of this, I'd point out again that your way of addressing costs doesn't work. You repeatability "pay" for the equipment, as you never apply the equipment portion of your per-batch cost to the principal.
Bryan
