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.
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 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 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 GoogleSubscribe
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Fantastic! Thank you so much.
This really helps a lot. I ran into a problem when I entered the finished product as an inventory part before I created the assembly list. Then the system wouldn’t let me insert the finished part from a pull-down list of inventory parts, and then would not let me use the same part number for the finished product. I find QBooks to be rigid when you don’t want it to be. Converting prior inventory parts into the new Manufacturing and Wholesale program is painful.
But you have been a great help. thank you !
Andrew, I’m not sure if I follow exactly what you are saying, but if you have an item in the item list as an inventory part, you can change the type to inventory assembly. It is one of the easy conversions they allow. Or, if you want, you can change the name of the original part to something else, then add a new part with the original name.
Hi, your article is really help but my question is how to convert inventory part into inventory assembly?? please advice. your respond is very important for me!!
Lori, that isn’t difficult, as long as you have Premier or Enterprise (Pro doesn’t support inventory assembly items). Just edit the item, change the “type” to inventory assembly, then add the components.
I have some rather lengthy BOMs which have been modified since they were first created. The end result is that, in some instances, the BOM components are not listed in the order I would prefer. There does not appear to be a quick way to rearrange these assembly components without going through a laborious editing process (deleting, re-adding, essentially recreating the reconfigured BOM).
Do you have any insights on how to reconfigure them more effectively? Thanks!
Rick, within QuickBooks, you don’t have a lot of options. You can insert new items, delete old items, but it is a manual process.
There are add-on products that can print the BOM in a different sequence, but it would have to be something like item ID sequence. You don’t have a field that you can use to re-sequence things.
Ok, Charlie – thanks for the prompt feedback
Can I create my Inventory on different warehouses?
EddieE: QuickBooks by itself doesn’t really support warehouses or multiple locations. There are workarounds, but they are a pain. You either have to get an add-on product that will handle inventory outside of QuickBooks, or you can purchase the “Advanced Inventory” option from Intuit, which only works with Enterprise 11 (and later).
How do you track WIP
Smitty, many different ways depending on what exactly you are looking to track, how your item list is set up, what kind of business you are in, and more. Take a look at this article for some ideas: http://www.sleeter.com/blog/?p=147
Your tutorial is insightful . But i have a different challenge with my inventory issuing and accounting .
BACKGROUND
My firm is into construction and keep over 400,000 items of spare parts .These items are not sold rather issued to to various sites and replace of worn out part at current cost .
BOOKING : Part issued are writtent to cost of good sold (P/L)
CHALLENGES : Qbooks allows stocks to issue out from stock through sales which create A/R or income , which am avoiding .
TEMPORARY I have being issuing stock from the part through the Adjust Quantity /value on hand modules. but am not satisfy with the process its cumbersome and lack of control over stock recording .
CONCLUSION
Kindly suggest the most appropriate means of recording that could suit stock recording needs.
Ademosu: A blog comment like this isn’t a good way to provide assistance, as we can’t really get into details. If you are just charging these against COGS, an inventory adjustment is a fairly clean way of doing it. But how easy that is to do depends on the year and national version of QuickBooks that you are using, and if you need to be in multi or single user mode, and more. Some situations/versions are easier to manage than others. It would also depend if you are charging this as a reimbursable expense to a customer or not.
ok.its a mult user(30 user) premier 11.0. its not reimburseable expense .
i wil appreciate if you can advice on a procedure that its easier and enhance control .
Ademosu: I assume you mean Enterprise, as there isn’t a 30 user Premier. Fortunately in Enterprise you can enter inventory adjustments in multi user mode, so adjustments are simpler to do. There isn’t a great process in QuickBooks to manage what I believe you are asking about, that comes to mind. Everything that I might suggest would revolve around manual procedures related to data entry, as well as controlling who has access and responsibility for these tasks. However, it is difficult to give you a detailed analysis, you should locate a knowledgeable advisor who can sit down with you and work out a good process.
Charlie,
I recently purchased QB 2011 Premier MF thinking it would be easier to have inventory and banking in one place rather than Quicken and Inventory on Excel spreadsheets.
I am beginning to think that QB is not the right thing for me.
I am a cottage crafter so I have raw materials that I make up into products to sell. One thing that I keep track of, is the date I puchased raw materials, so that if they become over 7 years old, I can write them off and get rid of them. I also like being able to sort by date so that I know what I need to start using. Have not yet figured out how to put in the purchase date. Can you help or should I return QB?
Susan, batch tracking like you are asking about is something that is currently difficult to do in QuickBooks. Your materials are all lumped into one pot per item. You can’t easily see an expiration date on a batch.
You can use the subitem-of feature to create a separate item for each “batch” as you buy it. However, there are drawbacks to that. If you have a high volume of items, if you are doing manufacturing where you use items in inventory assemblies, using subitems creates hassles that are hard to get around.
Charlie,
We run a small winery and our problem is how to take raw material and place it into WIP. We don’t know exactly how many liters of wine we’ll get from a ton of grapes. Some of wine is consumed during the process (evaporation during aging). The yield from grapes varies year by year. In some cases even the amount of yeast varies by 100%. Should we be counting our raw materials as non inventory items? How do we deal with WIP that shrinks in volume during the process?
Steve, that isn’t something that I can answer in a blog comment. You should work with a ProAdvisor who could help you, as there are a lot of questions to be asked before an answer can be generated.
How you treat the raw materials is a question to go over with your accounting professional. It can be non-inventory, it could be something else. Depends on how you want to deal with the accounting aspects.
Volume decreases aren’t an issue, on one level. If you use 2 gallons of grape juice and get 1 gallon of wine, no problem. It works out in the BOM if you are using inventory assembly items.
As far as variable yield, you make the BOM for a “standard” run, you issue that, and if your yield is higher or lower, you make an inventory Value adjustment to the QUANTITY of the finished item, leaving the VALUE of the item the same. So if you are supposed to end up with 10 gallons at $5.00 cost, but you only got 9 gallons, you adjust it to drop the one gallon, leaving you with 9 gallons but still at $5 cost. You have to do a inventory value type of adjustment.
That is a very simple example, it is a bit more complicated in real life, but that is the principle.
Thanks for this great article Charlie, I have been having great difficulties controlling the COGS for our SME manufacturing firm. Essentially, we have our total BOM and additional Labour and shipping costs we tried to build into the “Cost” field. So if a widget had a $50 BOM we would add a fixed cost for labour and then add a percentage-multiple for shipping to arrive at our total cost. Unfortunately, it seems that when I build the assembly, it only debits our inventory asset account in the amount of the BOM and doesn’t include labour in our COGS. Do we have to add these in as Service types to affect the total BOM or is something funky happening with our cost field? Any insight would be greatly appreciated
Eric, if you just adjusted the “cost” field, that won’t do a thing. Take a look at these two “cost” tutorials:
http://www.sleeter.com/blog/2011/02/understanding-quickbooks-inventory-cost/
http://www.sleeter.com/blog/2011/02/understanding-quickbooks-total-bill-of-materials-cost/
The “cost” field is just a reference, it isn’t used in any financial reporting. If you want a non-material cost to be incorporated then you need to add an other charge or service item in the BOM to represent that. See this article: http://www.sleeter.com/blog/2011/02/item-types-in-a-quickbooks-bill-of-materials/
Thanks for clearing that up Charlie, is there any way you would recommend most easily incorporating labour into COGS?
Two ways, really, unless you go to an outside program to manage inventory.
First, like above, use a service or other charge item. You would be entering an estimate or a “standard” cost of labor.
Second, upgrade to Enterprise 11 or 12, then with each build you issue you can enter a service or other charge item with the actual hours/cost.
If you have a very small number of builds and are building really large things (aircraft, battleship etc) use job costing approaches rather than assembly items.
Charlie: Great article! I’m wondering how you know that QB Manufacturing isn’t going to cut it and it’s time to move to a third-party product such as Fishbowl or MISys. I’m working with a small commercial bakery whose primary issues are production planning and knowing when to re-order raw materials such as flour and sugar. Their manufacturing is all to-order, but with a limited catalog of possible products. So they have raw materials, but no WIP as it’s all baked and shipped to-order. Could QB-Mfg cut it, or should we be looking at MISys or FishBowl??
Deb, that is a tough question. I don’t have an answer that would work in a blog comment. QuickBooks can handle the basics, particularly if they are making the same goods without a lot of variations. What you don’t get is any sort of time phasing – forecasts, looking ahead. If they can’t really do forecasting, if they don’t have situations where there are critical items that are hard to acquire in a short timeframe, then there is less pressure to move up.
The other end of the spectrum is an MRP kind of system like MiSys. You can get a lot of great reporting and integration, BUT it requires a commitment of money AND time. These higher end manufacturing systems aren’t going to magically produce great results, you have to understand them, you have to keep them up to date, you have to enter the data they need. That often requires additional personnel, so you have to balance the cost of the software AND the training AND the time/people it takes to make them work, against the benefits that you get.
Mr Russell,
We have a manufacturing facility and are looking for a new system that allows for BOM, inventory costing/tracking, multi bin locations, multi level pricing for both invoicing as well as cogs. Does QB have something appropriate for us?? We also have thousands of SKUs.
We currently use an outdated system (DBA Software) for accounting only.
HHHEEELLLLPPP
Thanks
Julie
Julie, QuickBooks Enterprise may be able to help you, but there are a lot more questions that have to be asked before we can say if it would work for you.
Premier or Enterprise will handle creating a BOM, inventory costing/tracking and COGS for most businesses.
Multi-bin locations – you would need Enterprise, with the Advanced Inventory option.
Multi level pricing means a whole bunch of things to different people. QB may handle it, might not, depending on the details of what you want.
And then, QB can be used as a base accounting system and you can then handle inventory using a wide variety of addons.
I recommend that you work with a consultant who understands inventory and QuickBooks. You may want to start by searching for someone in the “find a consultant” box in the upper right of this page.
Charlie, how to we get direct labor costs into our BOMs? Hold labor as costed units and as inventory items or? Thanks
Len, you can manage that through Service or Other Charge items. NOT as inventory items. See my article on this at http://www.sleeter.com/blog/2011/02/item-types-in-a-quickbooks-bill-of-materials/
Hi Charlie. I just read your blog article and thought it was interesting. However, we have a bigger issue. We have 30-40 different items that we assembly in hundreds of different ways to create thousands of different products. Is there an easy way to have quickbooks or a third party software build the assemblies? We have looked at the AutoBuildAssemblies and are not sure it will work to accomplish our tasks
Andrew, I’m not sure what exactly you are asking about. Are you asking about how to handle the variations that you have to deal with? Did you look at my article on custom manufacturing? Or are you looking for a way to automate the build process? I would need more info on what you are trying to do, as well as what QB product you are using, before I could say much more…
A way to automate the build process would be great. We will have more than 200K different products which to build. We are using QuickBooks 12.0 Enterprise Manuf. and Wholesale with Advanced Inventory.
How would you wanted it automated? What would you want the process to be, to start the “automated” builds?
Hi Charlie,
Thanks for sharing your knowledge on this blog.
We have Inventory Assembly items that we are no longer “building” ourselves, but are purchasing from another company as a finished product. We would like to keep the current inventory item name/number for these products.
It appears that we can remove all the Inventory Parts from the Bill of Materials for each Inventory Assembly and the assembly will remain active. Our testing seems to show that we can create a PO for the original Inventory Assembly Item Number, receive the finished assembly item into inventory from the supplier, create an invoice for the original Inventory Assembly and see the inventory count drop (as it would for an Inventory Part) – all without building the assembly.
So, in essence, it seems as if we changed an inventory assembly back to an inventory part by eliminating all the components from the Bill of Material. Is this possible? Do you see any problems we might encounter with this process in the future?
Thanks for your reply.
Cal – you don’t even have to worry about removing the BOM for the inventory assembly item. That only comes into play if you issue a “build”. So, just don’t build them.
THE ONLY issue, the only real difference between an inventory part and inventory assembly item, is how QuickBooks treats the “reorder point” and “build point”. From my perspective, these should be the same thing and should show on the reports the same way. However, Intuit treats them as separate items of data. An inventory part has a “reorder point” and if your on hand quantity falls below that, the item is highlighted in the Inventory Stock Status report. Inventory assemblies will not be marked if the quantity on hand falls below the build point, which is unfortunate.
If that is an issue for you, then you can rename the inventory assembly items and then mark them as inactive, and add new inventory part items with the original name.
Question concerning inventory purchases in cases – whether they be by lb or by each count. I have set UOM’s to purchase by the case and have sets that go down to either each or lb level. We may sell the items at full case or portions of a case. when we sell an item at less than its case count we select that UOM at invoice. It appears the iventory is being changed to the lowest level whether it be each or lb and if you look at the item it has the total case cost but it references each or lb. We do month end inventory by full case count and the inventory valuation is in each or lb. Do we need to convert it all back to case before adjusting the inventory at month end. This is getting rather frustrating.
Rene, when you define an item and use the multiple UOM feature, you specify a “base” unit of measure. QuickBooks will always track your quantity on hand in that “base” unit of measure. It will not track a separate quantity by each or by case.
Typically it is best to use the lowest unit as the “base” unit. So if you have an item you measure in “each” and in “case”, you normally would track it by “each”. All quantities are based on “each” then. You won’t see a report that will tell you how many “cases” you have on hand.
Hi, Charlie. I’m picking up some good information in reading here.
My question. I’ve only recently begun working at this small company and they use Quckbooks Manufacturing and Wholesale 12.0.
The company didn’t have an inventory location scheme, at all. I have the scheme set and have added a Location column to the Pick List. What do I need to do to have QB populate this column? I’ve gotten it to work on Physical Inventory printouts. It wasn’t a problem at all.
David, are you using the “Advanced Inventory” optional feature in Enterprise 12?
I don’t know if we’re using it or not. Neither does the owner. We are using the Enterprise addition, so if you could give me directions on how to check and/or set up, I’d appreciate it.
If we have it set up, it sounds like it’s by accident.
Select “Edit” then “Preferences” and select your “Items & Inventory” preferences on the left. In “Company Preferences” you will see a big button “Advanced Inventory Settings”. I don’t recall how it works if you have NOT paid for the service – I think that either this button will be grayed out, or the options on the next window will be grayed out. When you click the button see if the “Multiple Inventory Sites is enabled” box is checked, at the top of that window.
Note that you have to pay an additiona fee every year to use this feature. I will guess that you haven’t, if you don’t know about it.
If you have NOT paid for this or enabled it, then you don’t really have a “location” field in the proper sense. If you have it in a report, then one of two things are going on, probably. (1) You may have set up a “custom field” for this – but if you have, you should have no trouble adding it to a pick list. (2) You may be using the “location” field that is associated with Fixed Asset items. This is a common error – people see the field and think it is there for all items, but it is only used for Fixed Asset items. See http://qbblog.ccrsoftware.info/2010/05/faqwhy-cant-i-use-the-location-field-in-the-quickbooks-item-list/
OK, Charlie. Thank you. I’m not set up as “Authorized” for company preferences, as yet, so the button is certainly grayed out for me.I need to go rattle some chains and see where I am then.
I may be trying to do something that we won’t be capable of doing.
I certainly appreciate the help.
hi, Charlie.
i am using quickbooks enterprise edition. i have a manufacturing company, i purchase material on bulk and this material is given to contractors work within company premises for make a finished product. What i exactly require is when i receive finished product from contractors i enter quantity received and quickbooks separate material charges from making charges(contractors charges). The making charges to be added in contractor account(bill printed for contractors) and cost shows material+making. currently i have to enter all material and making charges separately and than make assembly and than enter received finished product into box a bottom a long process. Plz guide me how can i help make this process more simplified
In simple words when i add Finished(for example: box)i want cost of production(labor charges by contractors)added in their ledger and material cost afterwards add up to labor cost to make total cost of goods sold. it would be simple if i had 2 cost columns. plz advise
Usman, take a look at these articles:
http://www.sleeter.com/blog/2011/03/outsourced-or-sub-contract-work-in-quickbooks/
http://www.sleeter.com/blog/2011/02/item-types-in-a-quickbooks-bill-of-materials/
You can add other kinds of charges to the bill of material using other items types. The exact way of doing this varies depending on your situation.
Hi Charlie,
I am a small mfg company that builds products for foundries, I would like to tell you my process to see if I am doing this correctly..1st I recieve PO’s for products to build, then i go in and set up a sales order for that product, when the product is finished and ready to ship I go in to Quickbooks and make an invoice, then go to build assy. and tell it how much product I have shipped. Then that takes it out of inventory.. I guess my question is do I need to do anything diffrent or am I doing this the right way?
Roy, that covers the basics. There are many variations depending on how you run your business. The only slight tweak that I might suggest is to do the build before the invoice, so that you have the items on hand when you create the invoice.
Hi Charlie,
I am using QB Manufacturing 2011. My company manufactures car wash chemicals. We blend raw goods to make a 330 gallon batch of the finish product. When I create an assembly, I am using the gallon for the UOM. For a 330 gallon batch, I may use 2 gallons of one raw item. To make my one gallon of finished product, it requires the BOM entry to be .0060606060606 and so on for the raw item. There is only 5 place values available for entry, so my inventory and cost is not exactly correct. Is there a way to change this or maybe another suggestion of entering the assembly?
Thanks,
Cris
Cris, there aren’t any perfect answers. QuickBooks is not a good fit for this kind of manufacturing, which is why many “process” manufacturers go to some other add-on product to work with QB, having the inventory portion outside of QB. And I don’t have a recommendation of a product for you in this case.
One approach that I’ve seen, which only makes sense in some situations, is to have two different assemblies. You have an assembly for a “batch” of the item. The base unit of measure is a “batch” and it represents 330 gallons (but you don’t work “gallons” into this, just a “batch”). Your BOM has 2 gallons of the raw item, so no rounding errors here. You make one “batch”. Then, you do an inventory adjustment to transfer one “batch” into a different inventory item which is the final product, which has a UOM of gallons. So you decrease the “batch” item by a quantity of one, and increase the “gallon” item by 330. There are some details to work out, but that might get you away from the rounding errors that you see.
Thank you so much for the information. Have a great week!