QuickBooks Manufacturing Tutorial
QuickBooks has a “Manufacturing & Wholesale” edition, but there is a definite lack of documentation on how to actually use QuickBooks in a manufacturing business. This posting is the first in a series that will give you some guidelines on how to best use QuickBooks in a manufacturing environment. I’ll start off with some basics, and work our way up through some more complicated scenarios.
If you click on the Manufacturing item in the menu bar you will find a list of manufacturing tutorial articles.
There are many ways to manage a manufacturing firm, there are many very different kinds of processes that can be called “manufacturing”. Some of my suggestions won’t fit every business – so feel free to tell me if you have a better approach for YOUR business!
Starting with the Basics
I have a mixture of subscribers to this blog, from brand new users to seasoned veterans. So I’ll start with some very basic points for the uninitiated.
Note that I’ll be discussing features in the US Premier and Enterprise editions. Some screen shots may vary from what you see, as there are variations from one year of QuickBooks to the next.
First off – if you are using Simple Start or Pro then much of this won’t apply to you. The inventory assembly item that we will be using is only found in Premier and Enterprise. In addition, Enterprise has features that relate to manufacturing that aren’t found in Premier. I’ll try to point that out when possible.
The basic process to get started with assembling items is:
- Create the inventory parts that are components of your assembly.
- Create the inventory assembly and assign it the parts you use.
- “Build” or assemble your inventory assemblies.
Create the Inventory Parts
The first step you need to take is to enable inventory management in your company file. This is not set up by default – and it can be confusing to new users because you will see the item list even if it is not enabled.
Select Edit from the main menu, then Preferences. Select the Items & Inventory option, then the Company Preferences tab. Put a check mark in the box by Inventory and purchase orders are active.
Now you can add your inventory parts to the item list. While in the item list press cntrl-N to add a new item.
There are several different kinds of items that you can add – we’ll work just with inventory part items now (discussions on how to use other item types will be in future articles).
For each material item that you use as a component in your assembly, add an inventory part. You can also create non-inventory parts for items that you don’t keep track of by count. Please note that I do not recommend that you enter an on hand value at the bottom of the screen at this time, unless you are starting up QuickBooks for the first time and you have taken a physical count of your inventory.
Create the Inventory Assemblies
After you have created all of your inventory part items, you can add an inventory assembly item for each manufactured item. The primary difference from an inventory part is that you can assign a component list, a bill of materials (or “BOM”). This is a list of all of the parts
In this example, to make one “WHAS” wheel assembly we need two SC-12 screws and one RORO-4 roller.
Build the Assemblies
Now that we have defined the parts and assemblies, we can build the assembly. From the Activities button at the bottom of the item list, click Build Assemblies. In the Build Assemblies dialog you will select the assembly to build and enter the number of this assembly that you want to build.
When you click either of the build buttons, the program will save this build (if possible, as discussed below). Two things happen now:
- QuickBooks will remove the quantity needed amount of each of the component items (I refer to this as consuming the items in a build).
- QuickBooks will increase the quantity of the inventory assembly item by the quantity to build.
Essentially we are moving the cost of the inventory part assets into the inventory assembly asset.
A few comments on what happens here:
- Note the maximum number you can build… value. QuickBooks won’t let you build an assembly if you don’t have enough parts on hand to build it, This value shows you how many you can build with the parts that you have.
- If you enter a quantity to build that is higher than that maximum number, QuickBooks will mark the “build” as Pending. This means that it hasn’t been built, it is waiting to be built. There are reports that list the pending builds.
- When you enter the quantity to build much of the information in this dialog will not be updated until you move the cursor to another field, such as the date or memo. This can be confusing at first. When you move the cursor off that field the qty needed is updated, and the pending stamp could be displayed.
The Date field is very important. This is the date that the build transaction takes place. The quantity on hand for the component parts is based on your inventory status as of this date. Sometimes people get frustrated – they look at an inventory report and it says you have enough, but this dialog says you don’t! The issue is usually the dates – if the report is dated after a PO is received, but your build is dated earlier, you might not have had those parts on this date. Adjust the date in either your report, or the build.
As you might expect, the same issue relates to the assemblies you build – they are only available on or after the build date, not before.
This has been a quick overview of how to work with an assembly item and to issue a build. We’ll go into more detail about how to structure the BOM, and use other item types, in the future.
To learn more about using QuickBooks in your manufacturing company, click on the Manufacturing tab in the menu bar.
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Category: Manufacturing and Inventory, Working with QuickBooks
About the Author (Author Profile)
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 and participates extensively in the QuickBooks Community user forums under the ID of CCRussell. Visit his CCRSoftware web site for information about his QuickBooks add-on products. Charlie can be reached at charlie.russell@sleeter.com
He is also the author of the California Wildflower Hikes blog and a regular blog contributor to the Intuit Inner Circle.
Connect with Charlie at Google
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Hi Charlie
I am using QB enterprise 12 with Advanced inventory.
This article is great help and opened my eyes to a lot of things( the importance of the dates). We assemble products from items bought at bulk. We give out products to distributors like in consignnments and treat them as sites. Those distributors refill every week , and bring in invoices of sold goods during the week at that time, my question is how to have their inventory controlled in QB if we did not invoice yet their sales.
I’m not clear about what you are asking, Moheb. You’ve used sites to represent your distributors. You do (I assume) transfers to move product to the distributor site. When they sell the item, you enter an invoice to remove it from the site. What are you missing? Or better yet, what am I missing?
Charlie, Sorry for the confusion. I guess my goal is to generate truck inventory report ( site) , but at this point of refill I have not entered the weekly sales yet to generate that report. Thanks for your help , I think it is a timing situation which I have to work on manually for the timebeing.
Have a great weekend.
Hi Charlie,
Thank you for posting this, as you’ve indicated, I’ve found very little useful information on how to set up inventory and make the system work with respect to the QB Manufacturing Software. If you ever feel really inspired, I’m pretty sure there would be a high demand for a ‘dummies series’on this subject.
-AGS
Thank you, Andrew. As you look through this blog you’ll see that there are quite a few articles about this that I’ve written. In addition, there will be an “inventory” chapter in the 2012 version of The Sleeter Group’s “Consultants Reference Guide”, out later this year, that I’ve written.
Charlie –
I have a client where they purchase raw material in pounds, add labor and additional expenses, and end up with finished goods. They use Enterprise 12 with advanced inventory. (They purchase pounds of scrap batteries, separate out the useable batteries, and apply these to their sell-able inventory)
My question is this, how do I process the transfer from the scrap pounds (which goes into QB as QTY) to adding the individual items into the inventory for sale correctly?
Any help would be greatly appreciated. Thanks.
Ferrukh: You could do an inventory adjustment, reducing the quantity of the scrap battery item and increasing the quantity of the useable battery. You would use a “clearing” account for the adjustment account. The tough part would be determining how the cost flows, and I can’t really give you details on that without knowing a lot more.
Charlie, thanks for the great tutorial.
I am using Quickbooks UK version and I have access to assemblies.
My problem is QuickBooks does not seem to have support for unmanufacturing assemblies.
What I do is I buy an assembly in from my supplier ( in this case a kit-item, containing many difference electronic capacitors ). I sell this item – but I also sell the various individual items – which each are a separate product.
QuickBooks doesn’t seem to support the unmanufacture of the sub-assembly into the different components (i.e. I tried entering -1 in the quantity to manufacture, but it won’t let me). Are you aware of alternate solutions / suggestions? I wonder why Quickbooks chose not to include this feature.
Many thanks
Piet
You are right, an “un-assembly” option is not available. The best you can do is to use inventory adjustments to decrease the quantity of the assembly and increase the quantity of the component parts.
Thanks Dave – figured that much – will try and use the SDK to automate this. Regards.
we are using quick books enterprise and we have numerous assemblies which we would like to export the BOM into excel with all the pricing for each item to give us a TOTAL price for an item. how can i do this?
Thanks
Spencer, you can export a BOM to Excel using the CCRQBOM product (http://www.ccrsoftware.com/CCRQBOM/CCRQBOM.htm), which includes an Excel export feature in the report tool, or you can look at the Transaction Pro Exporter (www.baystateconsulting.com, which I reviewed at http://qbblog.ccrsoftware.info/2009/06/exporting-quickbooks-transactions-with-transaction-pro-exporter/). Both products can do what you want, but they have very different approaches to the issue.
We use Enterprise Manufacturing/Wholesale 12 but I’m having difficulty automating some of the processes in QB that we are currently doing manually.
We are a manufacturer that brings in bulk items, puts them in inventory, and then currently we’re using build assemblies to take those out of inventory and into COGS.
The problem that we’re having is that currently the sales/work order process is completely manual. The purchasing department has no way to look in QB and determine what items we will need for future builds. As I understand it, we could create the sales/work orders in QB to generate a Pick List. However, my problem with that is being able to keep the inventory up to date as the build goes through the manufacturing process (upwards of 1-2 weeks). I have read in the QB help that we could do Progress Invoicing. But that brings us to another issue. We can’t have multiple invoices for the same build. The end result has to be only one invoice to the customer.
So what is the best way to combine all these issues. We need to be able to put in the work orders in QB, track the items needed for each order, process inventory in phases (out of inventory and into COGS), and then one invoice to the customer at the end.
Any help would be appreciated. Thank you!
Jane, I’m not sure I understand which particular problem you are concerned with.
Items needed for future builds – invoices/pick lists/progress invoicing won’t touch that. They only look at the assembly item that you would have on an order, NOT the components of that assembly.
In this case, one thing to consider would be creating a “pending build” for the assembly. Then the components of the assembly will show in the Inventory Stock Status report as allocated to a future build (see my article on “available inventory” at http://www.sleeter.com/blog/2012/03/quickbooks-available-inventory/ for more about this).
Another option is to use an add-on product. There are several manufacturing oriented products like MiSys and ACCTivate (which I’ll be reviewing later this summer). These are large applications that will provide you with many forward-looking planning features, but they involve considerable effort to implement. Another add-on that would help, which is lower cost and easier to implement (but doesn’t do as much as the other two products) is CCRQBOM (http://www.ccrsoftware.com/CCRQBOM/CCRQBOM.htm). Note that this is a product that my own software company produces, it is not associated with The Sleeter Group.
If you are managing a multiple level complicated assembly that takes time to complete, you also can do your build in stages. Take a look at this article for some ideas on that: http://www.sleeter.com/blog/2011/02/manufacturing-wip-in-quickbooks/
Hi,
I am deciding between buying Quickbooks Premiere UK 2010 version on Amazon vs the 2012 version. is there really much of a difference?
Thanks,
Liza
Liza, if you are comparing the US and the UK versions, there are big differences. Taxes are different, payroll is different, and there are many add-ons and apps for the US version that won’t work with the UK version. I’d get the version that fits the country that you are working in.
Hi Charlie,
We have installed and working on QB Premier 2009. Its working fine except for some technical difficulty. Hope you can resolve the issue.
We are a Manufacturing concern, producing Bakeries’ items for our franchises. While working and creating for item assemblies we face the following :
1. If a product name is “A” with UOM is “kg” and contains 07 inventory items. 2 or 3 items are main while rest 4 to 5 items are used in very little quantity. For example 0.00133 (corn Flour) require to built one unit of “A” . which is quite difficult to calculate. While 40 grams for 30 kg production is little easier and calculate more accurately in reports. Is there any possibility that we can assign minimum production batch quantity and assign the same respective quantities while calculating BOM.
2. QB takes the cost in an assembly for a single Inventory items from the last purchase or the defined cost. While we need the average cost of unit appearing last against the item in a BOM.
Tahir: On the first issue, there aren’t great answers for QuickBooks. When you have wildly differing units of measure, and you have a large batch item that uses a very small trace item, QuickBooks doesn’t work well. It isn’t designed to accommodate process manufacturing like this, and rounding errors can be a problem. If the small item is not an expensive item, if it isn’t critical to track, sometimes we look at making it a non-inventory part so that you don’t have to track the quantity involved. That changes the dynamics of things quite a bit so you have to think about that carefully. Some businesses just ignore the trace items in a QB build. Or, you can change how you are defining the assembly itself – instead of making a BOM for a large batch, make it for a smaller batch, and always issue a build for multiple items to make the large batch. These are all workarounds, but they have significant impact on how things work in your financial system and you have to really think about how these would change things. Unfortunately, with QB, it is a tough problem to deal with.
For the second, note that when you build an assembly the actual cost of the built item DOES incorporate the average cost of the component parts. The “total bill of material cost” that is listed in the Edit Item window is based on the “cost” (not average cost) of the components, but that is just a figure used for planning purposes, it isn’t what is used in financial calculations. See my articles on cost and total bill of material costs (http://www.sleeter.com/blog/2011/02/understanding-quickbooks-inventory-cost/ and http://www.sleeter.com/blog/2011/02/understanding-quickbooks-total-bill-of-materials-cost/) I also write about this in the Inventory chapter of the 2012 Consultant’s Reference Guide (http://bit.ly/I7txfd)
Hi Charlie
Good Morning ! Sorry to bother you again for QB help and thanks for your last tips.
We are in process to define the “Class” with QB for our departments and need your help yet again.
Firstly please allow me to write some details to describe our company scenario.
Company Name : M/s ABC :
Class : ABC
Departments : 1, 2, 3, 4
Sub class or Class : 1
Sub class or Class : 2
Sub class or Class : 3
Sub class or Class : 4
Practically we take all inventory directly in Main Store Operated under ABC and then transfer the routine requirement to Various departments, Many of the items are same for every department for example Inventory Item # XYZ directly purchase and subsequently trf to 3 department as per their requirement.
1. We don’t find any WINDOW / form in QB which allow us to trf the inventory and products from / to Main store to / from departments. (Class to Class or Class to Sub-Class)
2. The defining Items Assembly QB doesn’t give us option to define Class. For example Inventory Item # RST purchase by main Store (Class # ABC) in 100 kg , transfer to Class 1 say 75 kg . RST consumed 40 kg while Producing one Item Assembly. Now reality says That we should 25 kg Inventory remaining at main Store, 35 kg at Class 1 ( 75 minus 40 kg).
3. Currently all the products from each department sales to franchises daily against one invoice consist of all four department products, Can we continue the same practice of one invoice for against all classes after assigning classes .
Tahir: If I recall correctly, you are using Premier?
When you say “Class” are you referring to the “Class” feature in QuickBooks, that you can specify in purchase and sale transactions? I just want to be sure.
“Class”, as in the feature in QuickBooks, only applies to transactions that affect the income statement. It doesn’t apply to the balance sheet. So you won’t see Class affecting the inventory asset account, if that is what you are looking at. Since a “build assembly” transaction typically only affects inventory asset accounts (although not necessarily, depending on your BOM) you aren’t going to see “Class” as a field in that transaction.
Thanks Charlie
But what about Inventory status at Various locations, how can we track them separatly? Each Location may have same item
Cheers
Tahir
Tahir, unless you create totally separate items for each location, you can’t easily track inventory status by location in QuickBooks Premier. If you have item “A” then you need an item “A” for each location. There are several ways of doing that, but it can be complicated if you have a lot of items. QuickBooks Premier just isn’t set up to handle that.
This would be handled by QuickBooks Enterprise with the Advanced Inventory option.