Allocating cost of inventory to specific tracking codes

I need some help on how I can allocate inventory as cost to a big project.

My business is as follows:

I run an events company giving a 3d2n experience for corporate clients to build a home for an underprivileged family as a CSR + Team Building iniatitve, and charge them a lump sum, which includes transportation, accommodation, food, builder kits (helmet, gloves, tool bag), etc.

I purchase builder kit inventory items that are used in each of these build experiences (marked by a tracking code each), which are helmets, gloves, tool bags and whatnot. Although so, I don’t sell these builder kits separately, meaning I don’t bill the client with a selling price, because I only bill them with a lump sum figure for the entire 3d2n experience, which already includes giving them their builder kits.

My question is:

How can I allocate the inventory items (helmets, gloves, tool bags, etc) into each build experience (tracking code), without selling them? Meaning how can I cost the inventory item into a tracking code without creating a sales invoice?

I’ve tried doing a journal entry for this but the inventory cost doesn’t automatically pop up after I input the quantity of inventory, and I believe it would be difficult to calculate my price per unit manually.

Is there another way I can do this?

Thank you!

Yes, you can do this by journal entry.

When you bill client lump sum amount for entire 3d2n experience, what account are you using? Sales?

If so, here is your journal entry

  • Credit account Sale of inventory items / Helmet
  • Credit account Sale of inventory items / Gloves
  • Credit account Sale of inventory items / Tool bag
  • Debit account Sales

You don’t really need to know the cost when doing this journal entry. When you enter this transaction, you know your selling price per helmet, gloves, tool bag. Even if you don’t bill your client for individual items, you are selling them at profit margin too. So just enter the sale price you have in mind. Don’t worry, this will not have any effect on your profit figure per job.

Hi Lubos,

Sorry for the delay.

The thing is that I don’t want to show builder kits as a line item in the sales invoice to the client. The sales invoice only has one line item i.e. $5,000 and this includes all costs, including the inventory items. The catch is that I want to cost these inventory items to that project without showing it on the sales invoice.

Any idea how I can do it?

This is my current challenge:

If I perform a journal entry to cost in the inventory to that project, it does not automatically calculate the unit cost of the respective inventory items, as shown below.

Anybody have other ideas?

Really appreciate it. Thank you!

First of all, in this case, you need to use account Sale of inventory items and not Inventory on hand.

Then, if you would charge your client for those inventory items separately, how much would you charge per each handglove, nail bag, raincoat, safety helmet… etc?

Is the sale of inventory items an income account or expense account?

To answer your second paragraph, I am charging my client for each handglove, helmet etc at my cost of purchasing them because I am not listing them as separate items in the sales invoice.

I really apologise for this lubos, perhaps I am not explaining myself clearly. Let’s try this random example:

I am setting up a computing system for the client, and I’m just gonna bill my client a lump sum of $20,000 and state in the description (this includes, 30 computers, wiring, modems, servers, and the service charge to set it up and guide the users or something).

I then key in purchase invoices relating to this project - I key in let’s say, an invoice for 30 computers. Next, I then buy 300 meters worth of cable and record it as inventory, but I only use 100 meters for this project.

How do I cost in those cables into this project?

Thanks in advance!

I think you shouldn’t be using Inventory items tab at all. Inventory module is for businesses who maintain perpetual inventory. Like retail, manufacturing, wholesale etc.

What you seem to be doing is to purchase items for specific jobs only which means you should simply allocate your purchases to various expense accounts and then invoice your client what you need to invoice.

If you want to know profitability per each job, you should be using Tracking codes module which you will find under Settings. Tracking codes will allow you to assign each transaction a code so you can run reports such as Profit & Loss Statement by tracking code, therefore obtaining list of all income & expenses for specific job and seeing how much profit you’ve made on it.

I don’t think having 300 meters of cable on hand is justification to maintain inventory. If it would be, then accounting firm could think we have 5,000 sheets of paper in the printer, how do we reduce inventory by 100 sheets of paper because we’ve used it for printing something for client… technically you can do it but that’s a bit over the top.

So before I get into mechanics on how to “sell” inventory through journal entry, do you think usage of inventory is justified for your business? Do you really maintain perpetual inventory or do you just make purchases on demand for specific jobs?

First of all,

Thanks lubos for explaining all of that and challenging the point in question. I really appreciate that.

I would like to justify my case and explain it further because I am still looking for a solution (and I think I’ve tried most things) but of course, my case is obviously a unique one and I don’t think it is in your interest to create a bespoke solution for every single case in the world, but more toward generally gearing people up to make their accounting more beautiful and streamlined. So conclusion is, don’t worry about this thread.

I think I will definitely take your point and figure out a possible different approach, but as of now, I think my business does need to keep perpetual inventory because I sell the builder kits in two ways:

  • Selling them commercially at a store front to individuals
  • Allocating them to a corporate team building project where builder kits costs are included (a tricky situation is when I have to allocate these purchase builder kits to a project tracking code up to almost a year later (because I bought the builder kits in bulk for bulk discounts)

Thanks for giving accounting conceptual advice and not just 24-hr tech dev support. Great approach!

Check the latest version, there is new tab called Inventory Adjustments and I think it will solve the issue for you.

When you use inventory items for the job, go to Inventory Adjustments tab and create new write-off of inventory items you’ve used for the job. The write-off should be normally allocated to some expense account such as Damaged goods but in your case, you want to select Event - Builder Kit income account.

Thanks lubos! Great work. I foresee this could kill many birds with one stone.