Production order

hi, we sell in addition to bed linens, curtains. As a curtain is a final product that goes through production phases I’m facing little difficulty.
please help me know if I’m on the right track or is there any other way to follow for such kind of produced

I issued first production order, then included inventory items under bill of materials.
the problem is that i cant find the exact service Emb609 under non-inventory items although I’ve added the services before.
in this particular example, costs for selling these curtains included sewing and embroidery service.
on the other hand, shouldn’t i be able to see the average cost incurred of the finished item in inventory list? and should i include sewing service as a separate cost or wages overhead instead? knowing the the tailors who work for us get fixed salaries.

Unfortunately, you are doing things incorrectly. There are a few errors revealed by your screen shots.

  • Non-inventory items should not be created for a single order. They are meant for things you sell on a regular basis. So if you take orders for curtains and offer an extra service of custom embroidery at a standard price, it is correct to create a non-inventory item for custom embroidery service. But it is not appropriate to create a non-inventory item for a specific order, because you will never enter that order again.

  • Non-inventory items are used as shortcuts on sales and purchase transactions, not on production orders. While you may think you remember using a non-inventory item on a production order, you did not. You are probably remembering using one on a sales order or sales invoice. The way they are used, for example, is that you would enter a line item for the finished curtain (produced under a production order) and a second line item for the custom embroidery service.

  • If you have non-inventory costs as part of producing a finished inventory item from input inventory items, you enter them on the production order, allocated to appropriate accounts. For example, if you subcontract your sewing to an outside tailor when manufacturing curtains, you would enter the cost, posting it to a subcontract labor expense account. But if you use your own employees for the sewing, you would post the cost of their wages to an internal labor account. (Do not use Wages & salaries, because that is for specific employee’s wages recorded through payslips.) There is an example in this Guide, under the subheading, Producing inventory:

how does manager calculate average cost for production orders?
if i manually calculate the total cost should be for example 534.67 while its giving 458.02
costs are respectively as follow
12 x 12 = 144
19 x 8 = 152
8 x 3 = 24
5 x 3 = 15
5 x 4 = 20
6.67 x 1= 6.67
plus + $173 subcontract labor

the average cost shown is always for 1 unit of the inventory.
Manager sums the average costs of your bill of materials and the per unit non-inventory cost to show the average cost of your finished item.

the total cost will be the average cost multiplied by quantity owned.

but the total is 534.67 and i have one finished inventory

can you post screenshot of your finished item inventory edit screen?
also, the average cost shown in the inventory items tab?


yes sure!

just to confirm, do you have the required stock for all the bill of materials included in the production order?
also, are you calculating the cost manually based on the average cost shown for the bill of material items or your sales price?

yes i have required stock and i’m calculating total average cost based on cost not on sale price. besides the difference is only about $76. There’s something underlying but i cant figure out

what about the subcontract labor? do you have any tax code set for it in your chart of accounts?

no, not any

To clarify, you should be calculating the total average cost based on the input items “average cost”, not based on their “latest” cost.

Their latest cost maybe 12, but the average cost is 10.75.

Is item code 100001, a brand new item or a re-named previous item.
Try deleting the production order, verify that Item 100001 has a zero average cost and then re-create the production order just in case a calculation error occurred with the first production order.

thank you. its working now

If i include non-inventory item in production order then how will i purchase that non inventory.
for example if i pay labour then cash payment will be recorded and their effect will be in income statement.
now that labour is already included in production order.
the effect of payment for labour is dual because labour cost will include in the head inventory costs of sale and the payment is also recorded as expense.

All input inventory items and non-inventory costs become credits on a production order. The finished inventory item becomes a debit. Since the non-inventory labor cost should be posted to the same expense account as the wages you paid the workers, it will be a contra entry. (Expense accounts are debit accounts.) Thus, it reduces the balance of the labor expense account. The ultimate result is that you are converting the labor expense into an asset in the Inventory on hand account.

Another way to look at this is that the production labor is not recorded as an expense, but is effectively income posted to an expense account.