Item Types in a QuickBooks Bill of Materials

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.

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.

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:

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…”.

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.

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.

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.

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.

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.

Related posts:

1. Understanding QuickBooks Total Bill of Materials Cost
2. QuickBooks Manufacturing Bill of Materials
3. Groups vs Assemblies in QuickBooks
4. QuickBooks Groups for Custom Manufacturers
5. Manufacturing WIP in QuickBooks

Tags: Bill of Material, Group Items, Inventory Cost

Category: Manufacturing and Inventory, Working with QuickBooks