Another Way to Deal with Scrap in QuickBooks Manufacturing

| November 15, 2010 | 5 Comments

In his blog post “Dealing with Scrap in QuickBooks Manufacturing,” Charlie Russell offered five creative solutions to the problem of leftover parts and materials after a manufacturing project is complete.

When manufacturers create a product from a bill of materials, they often find they didn’t need to use as much material as they had expected. The problem is that it’s difficult for them to account for that unused portion in QuickBooks, as Charlie noted in his blog post.That’s why I would like to suggest three ways to make it easier to deal with scrap. They are found in Fishbowl Inventory’s manufacturing option. Fishbowl integrates with QuickBooks, so any changes a user makes to his or her inventory levels in Fishbowl automatically generate corresponding changes to that user’s finances in QuickBooks.

These three options are similar to what Charlie proposed. The difference is that they’re easier to do in Fishbowl Inventory than in QuickBooks, and they automatically update QuickBooks, eliminating that headache.

1. Roll it into the final cost. Materials that were used or damaged in the creation of a product, but aren’t actually part of the end product, can be added to the final cost of that product fairly simply in Fishbowl. All you have to do is put the number of parts that were used or damaged into Fishbowl and it automatically updates the QuickBooks file to show the added cost in the final product.

An added benefit of this option is that it gives you an accurate count of parts in your inventory and a true cost of what it took to build your finished good. This way, you won’t run into unexpected shortages and delays in your manufacturing process, and you know exactly what the final product cost to make.

2. Scrap it. This is similar to the “Adjust Scrap to Expense” option Charlie suggested. But it’s much simpler in Fishbowl. All you have to do is open the Inventory module, choose or scan the part that is to be scrapped and click the Scrap Inventory button. QuickBooks will then be updated with an expense for that part in the account that you chose for scrapped inventory.

3. Put it back into usable inventory. This is similar to the “Adjust Scrap to Asset” option. Of course, if you have extra parts after finishing a job, before you start thinking about inventory adjustments you might want to go back and make sure you actually built your products correctly and that they’re not going to fall apart because they’re missing a few nuts and bolts.

Assuming that’s not the case, it’s a simple process to add extra parts back into your inventory system. Just scan the parts and put them back into the location they were in before you took them out for the manufacturing job. Needless to say, doing this automatically updates your accounting records in QuickBooks.

QuickBooks 2011 has plenty of new tools to make the task of accounting easier. However, if you’re struggling to keep up with scrap parts, you might want to try using Fishbowl Inventory to fill in QuickBooks’ gaps.

Category: Inventory, Manufacturing

About the Author (Author Profile)

Robert Lockard is a copywriter with Fishbowl Inventory. Fishbowl provides inventory management solutions to small and mid-size businesses. Robert lives in American Fork, Utah, where you can see him always holding or reading a book as he goes on his runs and walks. He also enjoys spending time with his family.

Comments (5)

Trackback URL | Comments RSS Feed

  1. John Stacy says:

    We have, in effect, a similar situation selling pieces of fabric off bulk rolls:
    1) We purchase a 100 yd roll of fabric and start selling off of it. We get to the end of the roll and find we have 3 or so yards left, not enough to sell readily.
    2) We purchase a 100 yd roll of fabric and start selling off of it. We get to the end of the roll and find we are 10 or so yards SHORT
    Often, these conditions occur weeks or months after the roll was delivered, so we cannot go back to the vendor.
    3)We purchase a XX yd roll of fabric and start selling off of it. We premeasure the roll to find that it indeed DOES contaain xx yds, BUT in our measuring and cutting errors, we come up x yds short.
    How do we account for such shortages (or even excess that we rarely get)??

    Thx, John

    • Charlie says:

      John, when you say “how do we account for such shortages” – are you asking how to deal with them ahead of time, from a planning aspect? That is what Robert is addressing.

      Or, are you asking how you can enter these variations into your accounting system (QuickBooks)? You’ve paid for the item, but you don’t have it for whatever reason. That is, you paid for 100 yards, but you end up with less useable yards for any of several reasons. If that is the case, that is what I was addressing in the prior article (http://qbblog.ccrsoftware.info/2010/02/dealing-with-scrap-in-quickbooks-manufacturing/) – you can adjust the shortage quantity out to an expense account, for example.

  2. John,

    Excellent question. So you’re saying that you often come up short instead of having too much left over after a manufacturing job. Here’s an idea you might try:

    You could take an average of all of the fabric amounts that you have been short and come up with a percent of fabric you need to add to each job to help you have enough to cover cutting mistakes and other errors in the sewing process. You could add a special column to each job in Fishbowl to show that you’re adding more fabric to each job, even though it usually only calls for a lesser amount. If you don’t use the extra fabric, then it would be easy to put it back into usable inventory or expense it and discard it.

    I hope this helps. Thanks again for asking.

  3. Raza Hussain says:

    We have a manufacturing process where a lot of one kind of raw material is processed to make two products with scrap/wastage. One is the main product with a high sale value and the other is by-product with minor sale value. In addition, together the recovery of both the products is less than 100%, which means some of raw material is wasted during the process.

    In the process, the recoveries are not constant and, hence, give different results for each and every lot of raw material.

    Is there a way to transfer all costs of the raw material to the high end product after deducting the value of by-product and also bringing in account the process waste.

    Thanks & Regards
    Raza Hussain

    • Charlie says:

      Raza, the short answer is that you will have to do an inventory value adjustment, maybe several depending on the details. QuickBooks itself won’t handle this kind of variability automatically.

Leave a Reply