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Sample bill for Inventory

now we're going to do water and labels as a non-inventory part and and this is why this example will basically cover most of the stuff we're talking about because you're going to see all these moving parts so i'm going to go to add new and then i'm going to create a non-inventory part and we're going to call this water we'll do h2o to make just make it funnier now very important whenever you create a non-inventory part that you plan to use in a manufacturing process you have to click on this checkbox that says this item is used in an assembly or purchased for a specific customer job it's extremely important you click that box because if you don't it won't translate the cost into the bill of materials so let's say the cost of water is also going to be by the gallon or by the fluid ounce so we'll take the same unit of measure here conversion and let's say that the one gallon of water is roughly remember this is not drinking water this is uh roughly about 18 cents and this is roughly what our water company chagios our utility water company chariot so the expense account in this case would be utilities okay so i'm going to create utilities and then i'll create a sub account called water just to make it just really easy to read and the preferred vendor is going to be let's say florida water corp right that's typically going to be like your city or your county or whatever that provides a water for the income account again i'm never going to sell this but i'll use the same expense account here called water utilities now the reason why i'm using this is because what i'm going to do is i'm essentially i'm going to extract the cost away from my uh what from my actual utilities cost and then to transfer it into inventory and at some point hopefully our utilities cost will be very minimal because we're we decided to transfer all our overhead utility costs of water or most of it to our manufacturing uh process so we'll go ahead and click on okay there we go um and then that will give you an idea more or less of that inventory part so i'm going to click on duplicate here and then i'm going to do now what was the labels okay uh let's label 20 ounce so for a label 20 ounce we're going to use a on each unit because we let's say we buy them by the unit but also by the roll so what we'll do here is we're going to consume each anyway but when we buy them we buy them by the roll so i'm going to edit this unit measure here and create here 100 pack roll okay we're going to call it 100 roll and that would be a hundred so we're gonna this is gonna be useful because we're buying them we're buying them in rolls of a hundred but when we consume them we consume them uh by the each even though this is still a non-inventory part okay so expense account now i'm going to use a caustic good sold account called labels so i'm just going to create a plain custom console account called labels and then click on save and close and let's say a in this case a roll of the label is let's say 19 so then this would be 19 divided by 100 so it's 19 cents per label we're gonna buy this from uh miami printers llc okay so we have we're obviously sourcing all these things from different places okay so we're gonna go ahead and click on okay there we go so we got our water and our labels and now let's do the big one which is labor now i'm gonna wait until a little later on in the webinar to cover the labor piece but i'm gonna include it nonetheless so i'm gonna go to new and then i'm gonna create two types of labor okay so i'm gonna go into a service and i have to click on this checkbox that says this service is used in an assembly or performed by a subcontractor or partner you just have to enter it so we're going to do uh labor one and labor two and basically is we're gonna have some employees that get paid twenty dollars an hour and then we have other employees that get paid whatever twelve dollars an hour we're gonna have a mixture of that so we're gonna have labor one and labor one i'll just simplify here and put twenty dollars an hour okay and this would be the cost twenty dollars an hour the unit of measure in this case will be time or we have it here already let's do a time here actually i think we already have it we'll do our so the unit measure is by the hour but we're also going to have minutes okay so we do minutes and then how many minutes are there uh how many minutes are there in an hour that'll be one divided by 60. so .01667 is how many minutes there are how many how many hours there are in one minute point zero one six six seven okay perfect good okay so we know what our hourly cost is but we're gonna measure uh how many minutes it takes of an employee to process a batch of the bottles so the expense account in this case is gonna be payroll but really important is under payroll in this case is under wages actually let me see how this quickbooks file has it let me look at the p l okay and we have a payroll account called wages so what i'm going to do in this case is i'm going to create let's assume that all the manufacturing costs is under wages and we're going to create a subaccount in there that's going to be for our for our labor allocation so actually to make make this be a little bit more clear i'm going to change office manager i'm going to change this to manufacturing labor wages that's gonna make it a lot easier to read when we're looking at this so we got manufacturing labor wages and then we're gonna in here we're going to come into the wages and then we're going to create a sub-account under it with the same name but then next to it i'm going to put allocation i wonder if that will fit okay perfect fit so we're going to have the same name and then the word allocation which means i'm removing it from there to transfer over to our inventory cost no prefer vendor in this case and for the income account i'll use the same thing as the expense account again i'm never going to sell this uh service period so i'm going to click on okay and then we'll duplicate uh labor one duplicate that and then we'll do labor two which is uh let's do 13 an hour okay and then we'll do labor two all everything else stays the same and we'll make this 13 an hour perfect so now we've created all the raw components of manufacturing a a bottle so let's go a hand sanitizer bottle so let's go into uh the the inventory assembly item that we created which is the 20 ounce bottle no it's going to be right here nope where's my assembly there it is okay so we're going to come in here and do a full view of the bill of materials and then we're going to enter all the things that go into a single 20 ounce bottle so the bottle one we're gonna put here one then we're gonna do a bottle cap one then we're going to put in this case the ethanol okay and the ethanol is going to be roughly 70 of the 20 ounces so let's do ounces and it's going to be 20 ounces in total but it's 70 percent of 20 ounces so we'll do 20 times 0.7 oops that's the wrong place to do it in right here so 20 times 0.7 so 14. so 14 ounces of ethanol go into a single bottle and as you can tell here my costing per bottle it's being calculated the way it should all right so the next one's gonna be in what was the next one it was the glycerin mix so let's do glycerin mix okay and i say the glycerin mix is about uh 20 of the 20 ounce bottle so we're gonna go to florida uh i mean fluid ounces and then we'll do in this case um 20 times 0.2 so 20 so i'll be four so it's gonna be four ounces of glycerin alloy mix and then they'll be basically in this case the remaining two ounces would be water so with the water and that's gonna be two ounces which is probably going to render zero cost yeah it renders zero cost in this case and and the challenge behind this is that um quickbooks can only round to two on the bom so in this case the water cost is totally inconsequential per unit however i'm going to go ahead and remove this for a second just to kind of illustrate a different example i'm going to illustrate that i'm going to hit ok then i'm gonna hit okay i'm gonna go back into the water and in order to kind of simplify my life here i'm gonna change the unit of measure to ounce okay so i'm just kind of making it as simple as possible i'm going to change the unit of measure of water an ounce okay and uh i'm also water we'll call this o.z and then we'll just make this a finish that and we'll just make this one cent okay just because i i want to translate some some part of the value of my utilities water cost into the unit and again the minimum needs to be ascent otherwise if you can't get a scent in there it won't even show up so we'll go back here go back to our bill of materials and add add the water okay so that's it just one cent worth of water in every bottle again this that's inaccurate because it's a fraction of a cent but to illustrate kind of uh the process we'll do that then we'll do labor so let's say we measured how many minutes it takes uh so this is the tricky part right how do we allocate labor to manufacturing so the best way to do it i think first of all it's an estimate so that's a really important point but the best way to do it is look if i were to turn the machine on at 9 00 a.m turn it off at 5 00 am and everybody that was working that day would be working on one particular unit right because we're doing uh continuous for the day right not discrete during the day but continuous for the day how many total units could i possibly output if i had everybody working in a single unit and that would be the closest number you can come up if when you estimate uh the labor so let's say for example we can produce in one day any given day we can produce five thousand bottles just to simplify it we can produce 5 000 bottles in one day and it takes one labor one full day of a labor one employee and one full one full day sorry one full day of two labor two employees to do this right so let's just go do that the trustee strategy spreadsheet for a second and you're gonna have to do this with a spreadsheet quickbooks cannot do any of this stuff you can just enter the number at the end so we got here our total cost of payroll for the employees for the whole day we have how many units we output and then we have the cost per unit based on the payroll and then here we have the fraction of of the dollar basically that each one represents at this point you know do you need to go into this level of detail at this point all we really need is to know that it cost me approximately three cents of labor per unit for one for one labor hour for one labor unit for one type of labor or four cents for another type of labor so we come here and we do labor one and in this case because this is 20 an hour i would then have to figure out um what would be the minutes percentages in this case so my goal is to get here three three cents there you go okay and then we're gonna do labor two okay and then we need to get labor two is gonna be four cents correct yeah four cents approximately in this case approximately a tenth of a minute to of of this employee to produce one bottle in other words in one minute one employee can produce 10 bottles that's basically what it means and in in this case it's kind of very similar but it's two employees worth and that's it that's how we came up with the number again we did this very back of the napkin excel type of calculation this is how we effectively do it let's do the the labels now the labels i'm gonna i'm using uh i can use items or i can use um expense accounts it really doesn't matter but i'm going to use items uh either way so we have this i'm going to go labels here which are in this case one each let's say we're going to convert this to a roll so let's do let's say we're going to get 20 rolls so we're going to do 20 rolls and we're going to pay 380 for labels beautiful notice that this is a non-inventory part which is perfect then we click on save let's say that we're also going to pay our utilities bill so let's go to enter bills and let's do things florida water corp and let's say our utilities bill for the month was 371 dollars and in this case i'm not even going to use an item i'll just put utilities water so i can skip the item usage i can use it and i use it if you want to use water here in the unit you can do that as well but for simplicity sake i'm just gonna pay the bill and not have to enter how many ounces or how many units of water we're using in this case so it's just my utility bill 370 71 dollars okay so then we're going to click on save so now i think i should have enough to start the manufacturing process so let me go into manufacturing and wholesale inventory activities build assemblies okay it might be on the inventory menu depending on what version of quickbooks you have click on the drop down menu pick my 20 ounce aloe okay i have uh i can make if you look in the bottom right right here i could potentially i could potentially make up to 1600 bottles finished cuts with all the inventory stock that i have but let's say that for the day and let me put today's date here actually let me put the 16th of december 2025 in the sample file so we can look at it clearly so let's say on the 16th we're gonna go ahead and manufacture a total of one thousand okay so we did a total of one thousand all the components that are being used in here are entered and then i'm gonna go ahead and click on save and close so if i go to my inventory valuation summary and i go up a date here i should be able to see that i have a thousand units of a thousand units a thousand bottles and bottle caps and my manufacturing my total manufacturer bottles is a thousand let's say that in the process and this is a really important piece in the process we um we broke let's say 15 bottles and 27 cups okay so because we have them we have them in a pin all the broken ones are in there so what you need to do is you need to now immediately make an inventory adjustment so we're gonna go into uh inventory adjustment so let's do an inventory adjustment and let's say on the same 16th and we're going to have a cost to good sold account in this case and we're going to call this uh let's call it uh i'm gonna call it yield errors and basically i'm gonna have a custom control account where every single time i have waste or or errors in my yield calculation or things that are broken that have no value i'm going to enter them in there you can call them whatever you want usually i hide them under a big cost of goods sold category but i'm just doing it so you can kind of see the illustration there so let's do uh bottle caps so we got bottle caps and that was like i think it was 27 so let's do 1000 minus 27 so now we have 973 and then we'll have the bottles i forgot what i said that we lost in bottles let's say we lost 20 bottles so the new count is 980. so basically i'm immediately going to cost these bottles and send them into yield errors now i can show you a different way to go about doing this um which is the sort of the advanced portion of this but for now let's do it like this so we can know exactly what's going on so i'm gonna go ahead and click on save and close and there we go so i'm gonna run a profit and loss report for the 16th so there's a 12 16 20 25 12 16 20 25 and we have our yield error for 1317 has been posted our water has been reduced by 10 okay and our manufacturing wages were reduced by 76 let me zoom this in so we can see a little bit bigger font and the reason why this is so important is you need to understand accounting for overhead what we've done is posted a cost for the things that we wasted we posted a reduction of cost for water because we're transferring the cost of our utilities towards inventory and we're also reducing the cost of labor the cost of labor because we're transferring money from labor into our manufacturing now i'm gonna do the report for the whole month in this case so we're gonna click on refresh and then we're gonna notice i'm gonna go down here to labels right here so you notice so we spent 380 dollars in labels we haven't consumed them yet okay and why haven't we consumed them that is an error hold on a second give me a second i think i missed the label or did i yes i did perfect i'm actually glad that happened that's i'm gonna save the error i made the mistake okay i missed it so um so i think i didn't put a label on these and that's why we didn't see that happen so yeah we missed the label all right so the one thing that was missing here was the label so we're going to put a label here and the label is one label and then we're going to click ok and then okay perfect so now when i go back into my profit and loss my label still hasn't been touched yet uh because i could change the bom but it doesn't retractively go back and fix a build assembly so i would have to go back into the build assembly and fix it manually or delete the build assembly and do it again you can do either one let me go back to my build assembly and i'm going to click on previews and add my label that i missed there okay so this would be a thousand labels so i could just manually add that in there and fix my build assembly on the fly that's only available in quickbooks enterprise quickbooks premiere which can do assemblies doesn't allow you to touch the build assembly on the fly you would literally have to delete the assembly and redo it for it to include the item that was missing from the original bom so i'm gonna go back and hit it build and close actually i'm gonna make this make this on the 17th on purpose we'll see why i'm going to build and close and hit yes and then let me push my profit and loss to the 17th click on refresh and then let's put uh the 16 to the 17 there we go so now we see a reduction of our label cost for 190 so now we see exactly what's going on in our cost of goods sold i'm going to go back to the beginning of the month again click on refresh here are my my labels which are 190. if i double click on the labels i can see my original purchase of labels that went straight to cost of goods sold and then i see the reduction of labels of the consumption of a non-inventory part so that's this is the the the consequence of taking a non-inventory part out of your p l to adjust it into your inventory asset okay we're gonna go down here and go to our wages and we see that when we actually paid our employees was 2250 okay and then uh you have the negative 76 uh 76.69 now the reason why i created a separate uh account is because you know maybe in my tax return altogether i don't want to see that adjustment or i want to make the adjustment somewhere else or i don't want to distort my actual payroll cost just because i'm transferring uh overhead uh from late from uh from my labor up to my inventory so i want to make it very easy very clear just in case i want to adjust it okay all right