How do work orders affect cost of sales and inventory.

How do work orders affect cost of sales and inventory.

All Orders 3.X
Work Orders 1.X
All Orders 2.X

When the status of a work order is changed to 'Finished' in NumberCruncher a 'Bill' is created within QuickBooks to record the work order.  The Bill has a net amount of $0 so it will never impact accounts payable.   The Bill's job is to increase the quantity and value of finished goods and to decrease the quantity and value of components.  

The 'Bill' should not have a net affect on inventory valuation (balance sheet) or the income statement until an 'Invoice' is created for the finished goods item.  However from time to time you may see amounts in Cost of Goods Sold or Inventory Asset relating to a work order Bill.  This may happen if a work order Bill uses a different cost than the average cost of the item at the time of the transaction. The following circumstances may cause this:

  • Creating an invoice before a work order is created and the quantity of an item being created is 0.

  • Infrequent synchronization causing differences in the component average cost in QuickBooks and NumberCruncher.

  • Changing the date of a work order bill after it has been created in QuickBooks.

  • Entering or changing a vendor bill for the components used on a work order AFTER the WO Bill has been posted in QuickBooks.

To maintain the 'Average Costing' of the components, QuickBooks offsets the difference by putting pieces of the 'WO Bill' in Cost of Goods Sold.  The amounts are the difference between the cost of a component used on the WO Bill and the average cost QuickBooks uses on the Inventory Valuation Detail report.     A typical WO Bill may look like the following: Note the component MAT - G has a cost QTY of -2 and cost of $13.10 each for a total cost that should be removed from inventory of -$26.20.

However in looking at the Inventory Valuation Detail,  we  see that QuickBooks uses the average cost that it computed to decrement  inventory of $12.50 each for a total of $25.00. 

The difference of $1.20 was posted to Cost of Goods sales.

Typically the above may occur at year-end when your account makes adjustments to transactions that affect average cost.


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