Accounting for outside manufacturing steps

Hello people
i need a little help with an accounting situation

we own a product that need need further manufacture process
that will be done from another company

the product will be sent to the manufacture company in cbm (m3)
and will come from the manufacture company in sqm (m2) the waste is variable
and i will have no way of knowing how much is used for making final product
so there is not fixed ratio for cbm to sqm
the manufacture company will charge us a fee for the process

then we will sell the finished product to a client

now i am banging my head around how to register these transactions in manager
without messing up the inventory and the costs

anyone can help ?

Because this product is present in two different forms with two different units of measure, you must have two different inventory items. Let’s call the input A and the output B.

Set up an inventory location for the outside manufacturing company. When you ship A, enter an inventory transfer. Now X m3 of A will no longer be at your regular location. This step is actually optional. You only need to do it if you think it will be important to know how much A remains in your regular inventory while the amount you sent to the manufacturer is away.

When you receive B, enter a production order converting X m3 of A to Y m2 of B. Add non-inventory costs to the production order equal to the fee charged by your outside manufacturer. You will probably want to make sure the outside manufacturer’s invoice and the non-inventory costs on the production order are posted to the same account. If you used the second inventory location, enter another inventory transfer moving B back to your regular location. Now, you have Y m2 of B in your main inventory at its full average cost, including the fee from the outside manufacturer.

Note: if we ever see the ability to specify multiple inventory locations on production orders, the inventory transfer at the end will be unnecessary. You will be able to record conversion of A at one location to B at another directly.


@Tut thanks for you answer a separate inventory location is a good idea i havent thought about it,
converting m3 to m2 is still a little bit problematic as i dont know the amount of wasta that will be generated and the job will continue for some time however never the less thanks for your insight and answer
much appreciated

You do not need to know the wastage before hand. The way I described the process, you would create the production order after the material is returned. So there is no uncertainty. This is also appropriate from an accounting perspective, because until the item B comes back, the product exists only in the form of item A in your system.