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Build Manufactured Product

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Overview

Manufactured Products are inventoried Products that must be built utilizing other inventoried Products. These Product Parts can be either Purchased Inventory Products or Manufactured Inventory Products. The sale of Manufactured Products can originate either in an Opportunity, from which the Sales Order is created, or it can be added to a manually created Sales Order. Building the Manufactured Product, though, is a completely separate process and does not require or link to a Sales Order. In fact, the Build process button is only available from the Manufactured Product record itself. 

There are only two (2) prerequisites to build a Manufactured Product: 

  1. The Manufactured Product record must be created and its Product Parts assigned (see the Manufactured Product Setup article for details) and 
  2. There are sufficient component Product Parts available in inventory. All of the product parts that are required to build a Manufactured Product must be available; partly building a Manufactured Product is not allowed. For example, you need one (1) part A and one (1) part B to build Manufactured Product X. There are two (2) part A’s and one (1) part B available in inventory. Only one (1) Manufactured Product X can be built. You cannot partly build a second Manufactured Product X using the second part A. 

Manufactured Products and the Product Parts are all inventoried Products. To maintain these inventories, the Build process will create Outbound Inventory Movements to remove units from the Product Part Inventories as the units are consumed and Inbound Inventory Movements to add the newly built units to the Manufactured Product Final Goods Inventory. The Build process will also generate the GL transactions needed to move the cost of the Product Parts used from the Parts Inventory account into the Manufactured Product Finished Goods Inventory account. 

Note: With the Hibiscus Fall 2019 release, Accounting Seed has implemented a weighted-average cost methodology for all new implementations of its Orders & Inventory module, replacing the standard unit cost methodology supported in our earlier releases.

Every inventoried Product has a weighted-average unit cost calculated and assigned to it. When the Build generates the GL transactions, it uses the weighted-average unit cost currently assigned to the Product Parts to calculate the total cost being moved. It also uses these weighted-average costs to calculate the new Manufactured Product’s unit cost. The new Manufactured Product’s unit cost will be used to calculate the total cost to be added to the Finished Goods Inventory account. An example of there transactions can be found below.

As noted, all inventoried Products have a weighted-average unit cost calculated and assigned to them. This includes the Manufactured Product Inventory. When  the new units and costs are added to the Manufactured Product Inventory and GL Account, it triggers the weighted-average unit cost to be re-calculated for the Manufactured Products. This re-calculated weighted-average unit cost is assigned to Manufactured Product Inventory and going forward, will then be used for Cost of Goods Sold / Inventory GL transactions involving the Manufactured Product. (See Inventory Valuation - Weighted-Average Cost in the Knowledge Base for more details.)

Note: Organizations that have already installed Accounting Seed prior to its Hibiscus Fall 2019 release have been grandfathered on the standard cost system, though it is highly encouraged that they migrate to the new weighted-average cost methodology. Please contact Support to develop a plan to migrate to weighted-average cost.

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Build Manufactured Products

To build a Manufactured Product, you must have sufficient underlying component inventoried Product Parts available. To check the Inventory Quantity Available balances, see Checking Inventory Quantity Available article.

  1. Navigate to Accounting Home and click the Setup tab. Then, under the Master menu, click Products.
  2. Select a list view (other than the Recently Viewed list view).
  3. Select the Manufactured Product for which you want to build inventory.

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  4. Click Build Product.

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  5. The Build process has four (4) steps: Build Options, Auto Allocate, Allocate, and Build. After completing the step, clicking Next takes you to the next step.
    Important: Once you click Next, you cannot go back and change the previous step. If a prior step must be changed, the build must be canceled and restarted.
    1. Build Options:
      1. The ledger will default to what is set up in Accounting Settings. If multi-company is enabled, then you can select a ledger other than the default.
        Note: When building a manufactured product, if the Ledger Manager was not used to set the Active Ledger, the default Ledger defined in Accounting Settings will automatically display in the Ledger field.
      2. The Quantity to Build is the number of Manufactured Products that will be built in this specific Build. Click Next when complete.

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      3. The system will verify when Next is clicked that each Product Part has an adequate quantity in inventory to build the Quantity To Build amount. If there is not, an error message is generated.  

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      4. At this point, you can cancel the Build and purchase additional Product Parts Inventory (see Create a Purchase Order) or reduce the Quantity To Build. For this example, the Quantity To Build was reduced to five (5).

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    2. The Auto Allocate step will automatically allocate Product Part inventory to the build from the Warehouse assigned in the search field.
      1. Select the warehouse that the Product Parts will be Allocated from.

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      2. If the Warehouse does not contain enough Product Parts to complete the total Build (i.e. across all of the warehouse’s Locations, it can not allocate all needed Parts), then an error message is displayed. You can select another Warehouse, assuming it has adequate Parts in stock, cancel the Build and either purchase additional Product Parts Inventory (see Create a Purchase Order) or transfer inventory.

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      3. If there is adequate inventory at the Warehouse to allocate the needed amounts, the Product Parts by Location will then be displayed along with the amount Allocated from each.

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      4. The Auto Allocation selection is based on the Inventory Quantity Available at each Location for the Product Part. The allocation starts with the Location with the highest Inventory Quantity Available, allocating from it until the amount needed is zero (0). If the amount needed can not be filled from a single location, the allocated amount will be set to zero (0), forcing it to be manually allocated in the next step.

      5. When complete, click Next. The amounts allocated will flow to the next Step.

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      6. The Auto Allocate Warehouse field in step b. can also be left blank. This will result in the Allocated amounts being zero (0) in the next step.

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    3. In the Allocate step, regardless of whether Auto Allocate was used or left blank, all of the individual Product Parts can be modified. To modify the auto-allocation or to manually allocate a Product Part, the radio button beside the Product Part Number should be clicked.

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        1. Once clicked, the Inventory Quantity Available by Warehouse and Location will be displayed.  A maximum of ten (10) Warehouse/Location rows will be displayed based on the greatest quantity available. To change the allocation, you can: either:

          1. Use the increase/decrease arrow,

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          2. Use the Arrow buttons,

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          3. Or, just delete and retype the amount. 
        2. The Product part must show zero (0) needed to be fully allocated.

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        3. The Build must be fully allocated to move to the next step. If the Build is not fully allocated an error will be generated.

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        4. When all Product Parts needed have been allocated, Click Next.

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    4. The final step is Build. Here the Destination Information must be provided for where the Manufactured Product will be stored. Both the Warehouse and Location are required and must be entered. When complete, click Complete.

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        1. A notification will be displayed when the build is successfully completed. The results of the build can be viewed by reviewing the Manufactured Product’s related lists. The Inventory Quantity Available (IQA) related list shows the IQA Number and the new Quantity that is now available. The Inventory Costs related list shows the weighted-average unit cost of the Manufactured Product.

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Inventory Movements Associated with Building Manufactured Products

As noted in the Overview, Manufactured Products are Inventoried Products. The Build process will create Outbound Inventory Movements (“OIM”) to remove quantity from the Product Part Inventories and Inbound Inventory Movements (“IIM”) to add to the Manufactured Product Final Goods Inventory. It will also generate the GL transactions needed to move the cost of the Product Parts from the Parts Inventory GL Account to the Work-in-Process GL Account and then from the Work-in-Process GL Account to the Finished Goods Inventory GL Account. The GL transactions will be covered in the next section.

The Inventory Quantity Available (“IQA”) list view can be used to review the OIM and IIM associated with the Build. 

  1. Navigate to Accounting Home and click the Create Entries tab. Then, under the Orders menu, click Inventory Quantity Available.
  2. Select a list view (other than the Recently Viewed list view).

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  3. The first step is to identify IQAs impacted by the build. In this example, there are three (3) Outbound IM’s associated with the build. Widget 1001-1 was allocated from two (2) locations, each of which would create an OIM. Widget 2001-1 was all allocated from one (1) location, so only one (1) OIM was created for it. Since all of the Manufactured Products were placed in one (1) Location, only one (1) IIM was created.

  4. To review the Outbound Inventory Movements, first select the IQA Name identified as a Parts IQA, then navigate to its OIM related list and select the OIM created by the Build.

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  5. The OIM Details record shows the Product, Warehouse, Location, and Movement Date, as well as the Quantity moved and the weighted-average unit cost used.

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  6. The other two (2) Outbound IM’s identified can be reviewed in the same manner, and are shown below. Again each shows the Quantity moved and the Product’s weighted-average Unit Cost.

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  7. The Manufactured Product’s IIM can also be reviewed in the same manner, and is shown below.

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  8. From the Manufactured Product’s IIM, note that the Unit Cost shown is $824.41. This is the Manufactured Product’s Unit Cost for this specific Build and was used to calculate the total cost added to the Final Goods Inventory GL Account. The calculation is straight forward. Each Manufactured Product is built from one (1) Widget 1001-1 and one (1) Widget 2001-1. The Manufactured Product Unit Cost is:

    (1 Unit Widget 1001-1 x Wtd-Avg Cost) + (1 Unit Widget 2001-1 x Wtd-Avg Cost)

    $451.18 + $373.23 = $824.41 

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GL Transactions Associated with Building Manufactured Products

As noted above, the costs used on GL Transactions associated with the Outbound Inventory Movements (“OIM”) is the current weighted-average cost assigned to the different Parts. The weighted-average unit cost of the Product Part is pulled from the Inventory Cost object which stores the weighted-average cost last calculated for that product. (The weighted-average cost is calculated when new units are purchased and/or added to the inventory. See Inventory Valuation - Weighted-Average Cost in the Knowledge Base for more details.) The weighted-average cost can be seen by opening the Product record and looking at the Inventory Cost related list. The weighted-average cost of the two (2) Product Parts are shown below.

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The GL transactions associated with the Build are available on the same OIM and IIM records used above. The GL transactions are found on the Related tab in the Transaction related list. Click View All to see all of the GL transactions, and the amount and the GL Account for each. The GL Transactions for the four (4) Inventory Movements are shown below.

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The GL Transactions associated with the OIM, are crediting the Parts Inventory GL Account (moving costs out) and debiting the Work-In-Process GL account. The Work-In-Process account holds the costs during the build process. When the build is complete, the GL Transactions associated with theIIM, move the costs out of the Work-In-Process GL account (crediting that account) and into the Finished Goods Inventory GL Account (debiting that account). 

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Weighted-Average Cost of a Manufactured Product

For Purchased Inventory, the weighted-average cost is calculated when new units are purchased and/or added to the inventory (see Inventory Valuation - Weighted-Average Cost in the Knowledge Base for more details). However, for Manufactured Products, each time a Build is successfully completed and Manufactured Products are added to the Finished Goods Inventory, a new weighted-average cost is calculated using the new Manufactured Product’s Unit Cost calculated earlier. Details on the calculation are available in the Inventory Valuation - Weighted-Average Cost article. 

In this example the beginning inventory available in the Manufactured Product Inventory was zero (0), so the weighted-average equaled the unit cost of the units being added.

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This weighted-average cost will be used for any Cost of Goods Sold / Inventory GL transactions involving the Manufactured Product, at least until another build is processed and the weighted-average cost is recalculated. 

To illustrate the weighted-average cost recalculation, let’s build another batch of Manufactured Products. To do this build, additional Parts are needed. Due to this purchase, which was more expensive, Widget 1001-1’s weighted-average cost changed. 

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Again five (5) Manufactured Product units are built. The Inventory Movements are shown below. Note that with this build, the unit cost of Widget 1001-1 now equals its new weighted-average cost (which is higher than before). This means that the cost of the five (5) Manufactured Product units built is also higher.

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When these new units and costs are added to the Final Goods Inventory, like before, the weighted-average cost calculation is triggered. The new weighted-average cost is shown below.

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Like before, this weighted-average cost will be used going forward for any Cost of Goods Sold / Inventory GL transactions involving the Manufactured Product, at least until another build is processed and the weighted-average cost is recalculated. 

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