Quickbooks Tweaks for Manufacturers

When using Quickbooks Premier for a manufacturing business there are a few tweaks that need to be considered. First, this presumes you are using Quickbooks Premier - Manufacturing and Wholesale Edition.

Situation 1: You have raw materials that make up a finished product and use a 3rd party factory for inventorying the raw materials, assembling the raw materials into your product, and then packaging it for retail.

For example, let's say your product is made up of Part A, Part B and Part C + labor + Part D (retail packaging). For simplicity you need 1 unit of each to make one salable product, and your factory has a MOQ of 1000 unit minimum and each raw material factory has an MOQ of 2,000 units.

A. Step 1 - Each raw material is an inventory part. Set each one up separately. I usually put the cost to cost of goods sold and the income to sales. Be sure to include your full cost of goods sold in the cost item as it will be important for tax purposes and your accountant. You will send a PO to each factory that makes each raw material. Upon delivery, you will receive inventory with a bill and click the relevant PO. Pay the bill with a check and your inventory will now populate in the Items section. Do the same for each item, including an inventory part for whatever labor rate (I usually call it "Labor[and the product name]" so it's easy to recognize) you have per unit for the factory you will use to assemble your product. Based on the above example, you would do a PO for 2,000 units for factory A, B, C and D and then a PO for your labor factory at 1,000 units of Labor[product name]. Each bill is received and paid and now in your items list with applicable inventory units.

B. Step 2 - Building inventory. Now create an inventory ASSEMBLY item. I usually call the item the same as my product sku for simplicity. It will also help if you migrate to an intranet ordering system where the orders by sku can easily map to your inventory items in quickbooks - (see more on this from my other blogs on backend web-based wholesale intranets). Put in your actual COST (as full cost of goods sold) including all raw material costs and labor costs - this is important as it may change from shipment to shipment taking other costs into account such as ocean shipping etc. Then put in expense as cost of goods sold and I usually put Sales as income account. List each inventory part as an item for the inventory assembly to make your product. So it would include Part A, B, C, D and the Labor item with the number of respective units (or yards, or meters, etc. - whatever unit of measure you use for your parts) to make 1 unit. Based on your inventory on hand it will let you know how many units you can make of that final product. here you should have 1,000 units as you have 2,000 of everything except the labor. When you build 1,000 units, 1000 units will show in that inventory part for the assembly item and Parts A-D will now show only 1,000 units left (since you used 1,000 of the 2,000 originally purchased in the assembly.

SITUATION 2: You warehouse the same product but in different locations (internationally or otherwise). Here you would need to build an inventory assembly item for each warehouse you have product in. I generally use the same sku code with -[CITY] to distinguish between them. If you are MOVING inventory from one warehouse to the other, you would go to the Adjust Inventory Quantities section and then deduct out inventory of the one warehouses sku and add in that quantity into the other warehouse's sku.

SITUATION 3: You manufacture a slightly different version of the same product. An extreme example of this would be Factory 1 makes Product A for high end stores, but factory 2 makes the same Product A in a slightly cheaper version for value stores. Another example would be that you have Product A in 2 different types of packaging. You will need to track inventory separately for ordering and reordering purposes and your warehouse will need to separately maintain that as a different sku. To do this you would need to build a separate inventory assembly for this item. I like to do this with the same sku but with a -B or a -V2 or something like that so that they are similar but still distinguishable. This has no bearing on the software or tracking - it is just easier for you to manage manually.

SITUATION 4: Your shipping vendor is different from your packaging factory. This may or may not include sending multiple products from multiple factories to a consolidated shipping company to ship everything in one container for more efficient shipping costs. Your COGS still must contain shipping with them, so for the inventory build you need to include the pro-rated shipping COST (normally you get a quote prior to shipping and you build after receiving the inventory) for each product into the cost of the inventory assembly prior to building it.