Bill of Materials and Manufacturing Workaround

This is a theoretical workaround for Bill of Materials.

The theory is that you “Invoice goods into production”, this entails invoicing the goods into production with a Customer Invoice and then invoicing the finished good out of production using a Supplier Invoice.

What you need is:

  • A New Customer Called “Production Customer” – When you invoice this “Customer” you are essentially moving component stock into Production.
  • A New Supplier called “Production Supplier” – When production is complete you will use the Production Supplier to move the finished good from production into stock.

Example

  • You have 3 Components (A, B and C) that are combined to make Finished Good Z.*

Purchase of Components

  • Make use of Supplier Invoices to purchase the components, this will update stock and update the supplier balance (on the profit and loss it affects purchases but no effect on Cost of Sales if you Run by Sales)

Good into production

  • Using a Customer Invoice you would “sell” the components that you are using for production.
    • Use the “Production Customer”
    • NO VAT
    • Goods should be sold at a price of Zero (i.e. no sales value recorded yet)
    • NOTE – There will be a cost of sale value at this stage – representing the cost of the components used in production
  • Make use of Analysis Codes to enable reporting on which specific finished goods you are producing, selling, etc. (i.e., I would make my Analysis Code “Finished Goods” and then list the finished goods, X,Y,Z)

Goods out of production

  • Using a Supplier Invoice you will “purchase” the finished good into Inventory
  • Use the “Production Supplier”
  • NO VAT
  • Goods to be purchased at a cost of zero (costs/purchases were recorded when you bought the components)

Finished Goods Sold

  • Invoice the finished good “produced” before as normal

Potential issues that may need to be catered for:

  • Finished Goods produced but not sold yet
    • Cost of Sale is already recorded in the Profit and Loss
    • Inventory is valued at zero (even though quantity is correct)
    • This is ONLY an issue on when you run your P&L by sales (not the purchases method)
    • Possible Solution – Journal entry to cost of sales and current assets (inventory) to account for valuation at a point in time
  • Cost of sale not directly linked to the sale (Sales by Item Report)
    • Make use of Analysis Codes to try link these up