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Item Types in a QuickBooks Bill of Materials

February 7, 2011 | By | 39 Replies More

QuickBooks Premier and Enterprise provides us with 11 different item types, of which 5 can be used as component items in an inventory assembly. Which should you use, and why? Each of the item types have their own characteristics and uses.

If you are a manufacturer, odds are you are going to use an Inventory Assembly item to manage your inventory. You will create a Bill of Materials  (or “BOM”), which lets you issue a build transaction. The basics of working with a BOM is discussed in my Manufacturing Bill of Materials article.

Here is a sample inventory assembly, a “computer base system” that is composed of several components: A “Case”, a “Motherboard” and 10 screws.

QuickBooks Inventory Assembly

Let’s talk about the kinds of “items” that we can add to the BOM.

Inventory Part

This is the most obvious, and basic kind of item you can add. An Inventory Part is an item that you are buying and stocking, where you want to track the quantity you have on hand. These will be parts that have significant value, that you want to track to make sure that you have enough on hand. Items that may stay around for awhile on the shelf, and so should be “capitalized” when you buy them instead of “expensed”.

When you purchase these items, the cost of the item is saved in an inventory asset account, which should exist on your balance sheet. The cost doesn’t go to your profit/loss statement immediately as an expense.

Using Inventory Part items provides you with some advantages and some disadvantages in QuickBooks. An advantage – you can track how many you have on hand, and see them in a variety of QuickBooks management reports. A disadvantage – you must have a positive inventory balance of the inventory part components before you can build an inventory assembly – if you don’t have the component parts, you can’t build the assembly.

QuickBooks Inventory Part

When you build the assembly, the value of the Inventory Part items will be moved out of the component inventory asset account and moved into the assembly inventory asset account. For a better understanding of inventory costs, read my articles on Understanding QuickBooks Inventory Cost and Understanding QuickBooks Total Bill of Materials Cost.

Inventory Assembly

QuickBooks allows you to use “sub assemblies” when working with your Inventory Assembly items. That is, your assembly can in turn have another assembly as a component. For example, here is a higher level computer system which uses our “Computer Base System” as a component:

QuickBooks subassembly

An Inventory Assembly component item is treated the same as an Inventory Part – you must have an adequate supply of the assembly component to be able to build the higher level assembly. Costs are handled the same way here as they are with the Inventory Part components.

Using “sub assemblies” this way provides you with the ability to break down your complicated products into simpler, more manageable groupings. I think it is best if you can keep a list of components down to one printed page (or less), so that you can easily see what is included in the assembly. In addition, QuickBooks Premier limits you to 100 component items in a Bill of Material, so for complicated assemblies you must use sub assemblies (or, move to Enterprise, which has a limit of 500 component items).

Using sub assemblies does create more work in some cases, since QuickBooks won’t print or process a “multiple level” assembly item all at once. I’ll discuss this a bit more later in this article.

Non-Inventory Part

Sometimes there are parts that you use in your building process that don’t represent a large portion of the value of your inventory, or of the assembly itself. These are parts that you don’t worry about tracking quantity – you buy them in bulk and just order more when you see that the “bin” is getting low. They could be things like small washers, screws, and so forth. These are often good candidates to be Non-Inventory Parts.

When you buy a non-inventory part it is “expensed” right away, rather than capitalized. It is important that you set these items up in the correct way. Make sure that you check the box titled “This item is used in assemblies…”.

QuickBooks non-inventory part

When you check this box you make this a “two-sided” item, with a separate expense and sales account.

When you build an assembly the “cost” of the Non-inventory Part item is removed from the expense account and included in the inventory asset account of the assembly.

I use these kinds of parts when the cost of an individual item is very small, so that I don’t worry about tracking the balance on hand of the parts. If you lose some during processing (drop them on the floor, etc.) the loss has already been expensed. However, if the items are hard to come by and take a long time to acquire, you may still consider using them as an Inventory Part item.

Service and Other Charge Items

You can add both Service and Other Charge items. I’ll have to admit that at this point, I don’t see a large difference between the two, other than being able to specify a unit of measure for Service items but not for Other Charge items. If there is a reason to use one or the other, please let me know! With either item, make it a “two sided” item by clicking the “used in assemblies” box.

QuickBooks service item

I use these items to add non-material costs to an assembly. I tend to use Service items outside processing charges, labor and the like. I’ll use Other Charge items for setup costs, sometimes.

If you have some work done on an assembly by an outside processor, such as deburring or coating, add this cost to the assembly item using one of these items. When you pay the vendor for the outside processing the cost goes to your expense account. When you build the item, the cost is “capitalized”, removed from the expense account and added to the inventory asset for the assembly. This can be handled in several ways, as I discuss in my article on Outsourced or Sub-Contract Work in QuickBooks.

You can also use this to “burden” your assembly with your own payroll costs in the same way, using a Service item that points to your payroll expense account. Please check with your financial advisors before doing this to make sure that you are using this feature the way that they want.

QuickBooks other charge item

Types You CANNOT Use

QuickBooks won’t allow you to use a Subtotal, Discount, Payment, Sales Tax, Sales Tax Group or Group item as a component. For the most part, this is understandable.

I do run into people who would like to use the Group item as a component, similar to how you would use an Inventory Assembly. QuickBooks doesn’t support this.

Note that you CAN use an Inventory Assembly item as a part of a Group. See my article on Groups for Custom Manufacturers.

Working with Multiple Level Assemblies

As I discussed above, there are good reasons to work with “sub assemblies”, splitting your complicated assembly item into more manageable sections. However, this can create more work. Consider my sample “Elite Computer System”, which had a “Computer Base System” assembly as a component.

If  I want to “build” the “Elite Computer System”, I must first build a “Computer Base System”. If I don’t have the base system in stock, I have to do two builds, in the proper order. QuickBooks won’t do this for me.

In addition, QuickBooks won’t let me print a Bill of Materials report that shows ALL of the components in the “Elite Computer System” – it will only show me a single level.

QuickBooks single level BOM

You can go to the Intuit Marketplace and find a number of add-in programs that can help. One program that you may find useful is CCRQBOM, which allows you to issue “multiple level builds” as well as print a multiple level BOM report. Please note that CCRQBOM is a product that my company produces.

QuickBooks mutiple level BOM

That is a quick run-through on item types – let me know if you have further questions, or suggestions on other ways of dealing with these item types.

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Category: Manufacturing and Inventory, Working with QuickBooks

About the Author ()

Charlie Russell is the founder of CCRSoftware. He's been involved with the small business software industry since the mid 70's, and remembers releasing his first commercial accounting software product when you had a one-floppy disk drive system, loading the program from one floppy and then replacing that with the other floppy to hold the data. He has a special interest in inventory and manufacturing software for small businesses. Charlie is a Certified Advanced QuickBooks ProAdvisor with additional certifications for QuickBooks Online and QuickBooks Enterprise. He also is a Xero Certified Partner. Visit his CCRSoftware web site for information about his QuickBooks add-on products. Charlie can be reached at [email protected] He is also the author of the California Wildflower Hikes blog Connect with Charlie at Google

Comments (39)

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  1. antonio says:

    does the regular premier have the bom feature or do i have to buy the industry pack where i can choose manufacturer retailer and all of those other features

    • Antonio – any edition of Premier allows you to create an Inventory Assembly item. The manufacturer’s edition (and accountant’s edition) adds a number of reports that manufacturers may find useful, such as “Profitability by Product” and others. Note that the standard edition might have restrictions in other areas, such as price level lists and unit of measure.

  2. Cecilia says:

    Hello Charlie,

    I am trying to add service costs to my BOM when Building an Assembly. I can do this successfully, but then after I build the assembly, add that build to a SO, create an invoice from the SO, and then registered a payment against the invoice, I took a look at my P and L sheet.

    The COGS went up by the raw materials listed in my BOm, as well as by the labor cost. The problem is, since I assigned the labor cost to an expense account called labor expenses, that account then also goes does – is negative – the amount of the labor cost. his means that I am not accounting for the labor expnse at all then. I tried re-doing this putting labor costs under a COGS Labor account, but the same thing happen, just with a negative number in COGS Labor to account for that cost.

    What can I do to resolve this and count both my labor expnses and raw materials costs that go into making and selling a product_

    Best,
    Cecilia

    • Cecilia, when you use the service item in the BOM, and build the assembly, this is essentially “capitalizing” the service expense. It isn’t saying “I incurred this expense”, it is saying “I’m taking this cost OUT of expense and into the value of the assembly”. It reduces the expense.

      The expense has to be posted to the same account when you spend it. That would be in another transaction. A paycheck, a regular check, something like that.

      For example – I pay a vendor $10 to do some work. I have an expense for $10.00 and it shows in the P&L. I build an assembly, and I have that $10.00 as a burden item for the assembly. The build will reduce the expense by that $10.00 so now my expense account has a zero balance (assuming this is the only transaction for this account). My inventory asset account used in the assembly item will go up by that $10.00. I’ve moved the $10.0 off of the P&L and into the balance sheet. Later, when I sell that assembly, that $10.00 is included in the COGS account for the assembly (along with the other assembly costs).

      • Chris says:

        Hi Charlie,

        I’d love to see a specific step by step blog post on this topic. It is very poorly covered if at all in any documentation or other user communities but the question comes up all the time. This COGS labor function is built in to most higher end ERP and manufacturing environment software but not in Quickbooks.

        Thanks!

        • Thank you, Chris. It is built in to most higher end MRP/ERP systems, which have more flexibility than QuickBooks. The process isn’t simple in QuickBooks – or, perhaps, it is TOO simple, as it doesn’t provide you with the controls you need.

          I’m working on a book on QuickBooks Inventory and hope to have more detail on this there. Once that is out (and it will take awhile, there is a lot of info) I may add an article here that is derived from the book.

  3. We print decals. We buy vinyl and ink to produce the decals. We do not stock printed decals. They are printed as ordered. What kind of item do I pick for inventory?

    • Mallory, that depends on the version of QuickBooks you have, the kind of analysis you want out of QuickBooks, how much time you have for data management, how long your vinyl and ink supplies stay around, and some details about the decals that you are printing. Lots of issues involved, so it is hard to give a short answer in a blog comment.

      For example, if you have QB Pro, you don’t have assembly items, so that limits your choices.

      If your decals are “stock” items, that you repeat, you might make them inventory assembly items so that you can consume the vinyl and ink and get some cost analysis of your produced items. But that makes more work, you have to “build” the decals, which takes extra steps.

      If your decals are custom made each time, with different amounts of ink/vinyl, then assemblies might not work (although if you have QB Enterprise then there are ways to make that work). You might consider using a generic Group item that you modify each time you issue an invoice. But you don’t get the cost-to-make analysis.

      If your vinyl and ink are bought in large bulk quantities, and are low cost per unit, and are used up fast, those might be non-inventory items. But that changes how you do the accounting…

  4. Monique says:

    Charlie, my business does not stock product in house I take the order and send a po to my vendor they fill my order and ship it for me, however I do order pallets for my vendor to ship my items. I need to keep track of the pallets he has on hand, how do I set this up in quickbooks. can you show me?

    • Monique, that all depends on what exactly you are trying to accomplish. Are you talking about tracking the physical pallet itself, as an item to track? Or are you talking about a pallet of a particular product – so you are tracking how many pallet loads of each product you have? It isn’t clear.

      This kind of thing is usually something you need to sit down with an advisor to work through, so you can look at the specifics of how you run your business.

  5. Russell says:

    Charlie, I am making assemblies for cabinets so that i can just enter the code in an estimate/proposal. I dont want the inventory & labor within these assmeblies to hit the P&L until I actually sell them. I am creating many many assemblies! How can I make assemblies be almost “dormant”, i mean not showing up on reports, until I actually put one on an estimate or invoise. Thank you for any and all help!
    oh, I have Enterprise Solutions: Contractor 2013.

  6. Nadia says:

    Hi, our company uses QB Premier 2012 edition. I want to create assembly item from two existing inventory items. When I make a build QB shows the maximum number of assembly items I can create.And for some reason it is only from the first inventory item amount, the rest of inventory I am not able to take to create the full amount of assembly item. Where is my mistake?
    Thank you,
    Nadai

    • Nadia, I’m not quite sure I can visualize what you are seeing exactly. The “max you can build” feature looks at all the component parts you have on the build date, and the BOM, and decides what you can build.

      So if I have assembly “ASSY1″, and it has two components “COMP1″ (one required) and “COMP2″ (two required), and you have 10 of COMP1 on hand and 10 of “COMP2″ on hand, the max you can build of ASSY1 will be 5, since each ASSY1 requires two COMP2 components.

  7. jana says:

    hi there,
    We’ve just upgraded to qb 2013 manufacturing. We’re getting ready to build assemblies but are stumped on two parts. First: we are a 2 person corporation. My husband does all the manufacturing and I do all the selling. I’d like to include the CNC machine time as an item in the assembly so we have an accurate cost. For example if our machine takes 5 minutes to cut item x, and a reasonable rate for machine time is $75/hr, can I include this as a service? I just am concerned because it’s our machine, operated here, not by a vendor off-site. We don’t actually pay someone for the work, but rather the machine is working.

    I have a similar question about my husband’s labor per item produced. As a new company our payroll is on the low end,so if we included a payroll item in an assembly, could it cause trouble?

    I guess what I’ m really wondering at the most basic level is that if we can’t include machine time and labor in the assembly, why use the assemblies at all, and instead just put everything into cost of goods?

    thank you for any feedback!

    • Jana, these are issues that are really difficult to explain in detail in a blog comment. How you deal with this depends on many factors, including how you want to deal with some accounting issues, and I don’t provide “accounting” advice via a blog comment like this.

      You can add service (or similar) items to the BOM to include that cost in the assembly, but that adds that cost to the assembly inventory asset valuation. That cost has to come from somewhere. It is going to affect your financial statements if you do this. You need to talk to a competent financial advisor to know how best to handle this. There are big tax implications here as well.

      While you aren’t paying for the CNC machine time expressly, it IS costing you something to run it in wear and tear, operating costs and such.

      • Jana says:

        Charlie,
        Thank you very much for the quick response. Leave it to me to try to figure something out in the most complicated way! I’ve been chewing on this for days now and am starting to believe that the way we were handling it before (just expensing materials as we purchase them and not dealing with the time issue) is probably the most elegant solution for us at this stage of our business.

        I really appreciate your input!

  8. Karen says:

    Hello,
    Our business manufactures and sells compost planting mixes, structural soils and other growing medias. In the past we have expensed all our raw materials (no capitalization) and at year end, a cost estimate would be evaluating and journal entry posted to inventory asset (no items, just cost) against the materials expense. This year we have created inventory parts with assembly items. Our manual cost models (assemblies) are built by adding the parts costs then adding a loss % of materials, plus a blending and screening cost (performed by employees), then finally adding an overhead % cost.

    In our QB assembled items, I have entered the component material parts and then added a loss of material percentage from the parts total and entered this total in the “cost” window. My concern is that when we view our Sales by Item costs to see our profit margin, it is not true profit margin as the *blending/screening and *overhead percentages are not included in the assembly. Can I add blending/screening costs under “service item” pointing to the payroll expense acct and *% of overhead as well?

    Your advice is greatly appreciated!

    Karen

    • Karen, in a general sense, yes you can do that. However, keep in mind that you are (depending on the details of how you set it up) reducing your expense and putting that value into your inventory asset. In short, moving the cost from the P&L over to the Balance Sheet. This has several implications for your business, including tax issues. So, you should discuss exactly how you are doing this with a qualified financial advisor who understands these kinds of issues and what the impact would be on your financial statements.

  9. Darrel says:

    Hey Charlie,

    My wife and I have a small baking company and we have the QB’s Premier Manufacturing & Wholesale 2013 Edition. I have been setting-up all of the ingredients used for resale as inventory parts, or non-inventory parts and have created some purchase orders. Now, I am trying to set-up the supplies/assets that are purchased and used for the business, such as the baking sheets, measuring cups, small hand mixers, etc. How do I show these items as pruchased and as assets of the company?

    • Darrel, you probably should talk to a qualified accounting professional about that kind of thing, as there are decisions to be made.

      “Supplies”, things that are consumed in your baking, are going to be either non-inventory parts or inventory parts – a lot of it depends on how long these things hang around before being consumed (and other factors). Things that are truly “assets” that don’t get consumed, like a hand mixer, is going to be (most likely) a fixed asset and not be a part of the costing of the BOM. But it isn’t something that I can go into detail in a blog comment, there are a lot of factors to take into account.

  10. Meraf Gedlu says:

    Hello Charlie,

    How do you print the Inventory Assembly/Bill of Materials that you showed under Working with Multiple Level Assemblies?

    Thank you,

  11. Luke Graham says:

    Hi,

    I have set up the BOM feature and it seems to be working well: purchases of raw-materials are capitalized and their levels depleted as various assemblies are built. When the finished product is sold, I get Income and COGS. Perfect.

    One build – and we have done several of the same assembly item – posted a freak amount straight to my *COGS line on the P&L even though the product was not yet sold. It was an amount smaller than the total value of the build, but not a match to the value of any of the constituent parts.

    To put it another way, all the other builds we have done always push up Inventory by the value of the finished product (say $100) but reduce inventory by the value of the constituent parts (say $75, $12, $10, $3 = $100) so the net change is zero. This one-off build pushed it up by the total, then reduced it by the constituent parts (again netting to zero) and then FURTHER reduced it by an unexplained additional amount.

    Any insight?

    • Do you have a negative quantity on hand for the assembly itself? If you do, COGS does really odd things, because QuickBooks can’t figure out an “average cost” for something you have a negative quantity for. It tries to compensate, and when you bring the balance back to zero or more, it will correct that by either redoing the COGS calculation, or by posting an adjustment.

      If you don’t have a negative quantity on hand it sounds like there may be some corrupted data, although that is hard to say. You need to have a knowledgeable person get their hands on the file to investigate.

  12. Tura says:

    Dear Charlie,
    I have been reading all your blogs and I must say you have educated me a lot. I understand you cannot possibly answer all my questions in your blog comment, I hope you can give us hint.

    My wife and I have small company that blends different spices to make a finished spice product that we sell in jars as wholesale.

    Here is the scenario:
    – we buy a number of gourmet spices in large bags measured in pounds.
    – we then take small amount of each spice (eg. 0.5lb, 0.32lb etc) blend them to make the finished product. This finished product is first produced in batches. For eg. one batch contains 48 jars. But We don’t sell in batch so some how we need to create a jar as an assembly item.

    we have created a batch as an assembly item. Should I create the jar as a sub-assembly of the batch assembly to track the jar inventory?

    Also as I said earlier, we use a fraction of a pound of each spice to make the batch. How can we track the cost and the quantity of each spice ingredient used to produce the finished goods?

    Note: We are using QB premier Manufacturing edition 2013
    Thank you

    • Tura, as you have found, QuickBooks isn’t good at dealing with “yield” – that is, it is designed so that if you build one batch, you get one “item” as a result. There aren’t any really good answers for your situation. The workarounds are:
      -Create your recipe to be for one jar of product. That can be difficult when you have small items like spices, as you may run into some rounding errors.
      -Create the recipe to make a “batch” (that is, the product itself without the jars, etc). Then create a higher level assembly that uses one jar and 1/48th of a “batch”. That again will give you rounding errors.
      -Create the recipe for one batch, build it, then make an inventory adjustment to increase the quantity of the item by 47 while keeping the value the same. So that you do one build, then adjust things to say you ended up with 48 items instead of 1. That is a hassle.

  13. Matt Smith says:

    Hi Sir,

    Now i am facing another problem which is when i purchase items and track as non inventory item and link these expense to “material expense account” and use these items as build assembly after build the assembly when we sold these items and check the P&L Reports it shows negative amount in “material expense account”.please give me some advice

    • Which is the way it is intended to work, Matt. When you build using a non-inventory part, it is going to remove the cost out of the expense account and add it to the inventory asset of the assembly. One would assume that you have purchased this component item – when you purchase it the cost is added to the expense account, and that cost is removed when you build. If you have a negative value then that means that you either aren’t purchasing the item, or that you have consumed more than you have purchased.

  14. Nancy says:

    Hi Charlie,
    assembling my product requires labor, so i am outsourcing the packing and assembling of the item to another company. they are billing me by the hour. how do i record this expense in quickbooks? as an item that is part part of the assembly? as an account? at the end of the day, i would like to see an exact breakdown of how much it costed me to assemble each item.
    many thanks

  15. Bobbie Miller says:

    Hello,
    I have to enter time and material in machine shop by each job that comes in. I usually have to generate a separate report for each, is there a way to have the material and labor time on one report?

  16. John Monday says:

    Hi,

    Our company has employees that provide a service to our clients that includes a service including supplies that we purchase. We use QB webconnect to transfer orders into time sheets from our web based application. We invoice our clients using data transferred from those time sheets based on the service item. I am currently keeping up with COGS that I purchase, but I would like to attach an item (inventory or non-inventory) to that customer without billing for it separately so that QB will report correctly based on that cusotmer. I understand that you can build assemblies and groups, but I can’t put one of those on a time sheet under service item. I am currently running QB Premier Services Edition 2014. I could probably have our developer code to have the items used upon webconnect transfer, but where would i send that info? Do you have any ideas?

    • John, that is complicated, and not something that I can answer well in blog comments.

      You are right, timesheet information isn’t going to plug directly into an assembly build. With Premier you can’t really make builds easily that are job specific – you have a BOM that is a “standard” build. So you can put in an estimate of what the labor cost should be, but not the actual amount. Then you have to track the variances, if that is what you really want to do. Best to talk to a ProAdvisor who can help you set up that kind of system (if that is really what you need). QB isn’t going to do much automation there for you.

  17. Jeff says:

    Hi Charlie,

    If you could point me in the right direction you would be my hero.

    We sell a product A that requires a QTY of 1 of B and C.

    When I place product “A” on a sales order I would like the inventory of B and C to adjust by 1 as well.

    Here is what I have tried and failed at so far.

    ASSEMBLY ITEMS:
    I created an “A” assembly item. but when a sales order is create with “A” …. B and C do not adjust.

    I guess I would need to “build an assembly” every time we placed something on sales order. But I would rather just put “A” on order, and have B and C inventory adjust, just like A does.

    ITEM GROUP:
    I thought this would be the solution but there is no way to assign a price to the group as a whole, only the sum of the parts. And I would not want to enter the price manually everytime.

    Do you have any suggestions I could try? All I want is when A is entered on the S/O, B and C inventory adjust.

    Thanks.

    Jeff

    • Jeff, no adjustments to quantity on hand will occur with a ‘sales order’. That is a non posting transaction.

      For an invoice, as you say, a Build transaction is necessary to get the components of an assembly. I don’t have enough details, but normally your situation calls for a Group item. If you don’t print the details of the group item, add a “discount” item to the group set to a value that would adjust the price to what you want.

  18. Gis says:

    Hi Charlie!
    Is there any way to print BOM to give it to my workers as s guide when assembling?

    • Gis, that depends on the QuickBooks product you are using. With current versions, in Premier there isn’t a good way, but in Enterprise you have options to print the BOM in the Edit Item window, or the job in the Build Assemblies window.

      Alternately, you can use an addon product. One that would work with both Premier and Enterprise is CCRQBOM (http://www.ccrsoftware.com/CCRQBOM/CCRQBOM.htm ). Note that this is a product that my own company produces.

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