Overview
Inventory and Work Orders
Raw material inventory can be allocated at different times in the life cycle of a work order. You can choose to automatically allocate work order components when work orders are initially entered. Alternatively, you can manually allocate work orders using the Allocate Work Order Components screen. The decision regarding the allocation of work orders is important. If work orders are entered but not put into production for a long period of time and you are automatically allocating components, this will prematurely trigger order points in Purchasing and needlessly tie up capital in your inventory.
You can choose to not allocate work order components by simply not automatically allocating work order components and not using the Allocate Work Order Components screen.
In addition to component allocations, the finished goods of a work order can show to be on order at different times depending on your inventory needs. You can choose to have work order finished goods on order when the work order is allocated, which might be as the work order is entered if you are automatically allocating work orders, or wait until the components are released to production. All work order finished goods will be on order at the time the components are released regardless of other settings.
When work orders are completed, the finished goods are removed from on order.
Bill of Materials and Work Orders
The Production module is closely integrated with the Bill of Materials module in that most work orders are to build parent items with the bill of material specifying the component raw materials. You can also create work orders that do not reference a bill of material and enter your own components for the work order. If a valid bill of material exists for an item, the components for the work order are automatically taken from the bill of material down to the level specified on the Production Setup screen. The Bill of Materials manual has more detailed information on bills of material.
Work Order Data Flow
Work orders can be the result of customer orders or manually entered via the Work Order Entry/Query screen. Once a work order has been created, components are allocated and released to production. Component allocation is optional. Various reports such as component pick lists and open work order reports can be printed. When production has finished a work order, the work order is closed and finished goods are placed in inventory.
The components for work orders may come from a bill of material or can be entered by the user for one of a kind work orders. You may also modify the components of a work order when specifying a bill of material, again, for one of a kind work orders.
The work order pictured above was entered using a bill of material for item DRS, version STD, quantity of 3. The quantity of the components is calculated based on the quantity of one finished good and the number of the components required from the bill of material. In this case 20 legs are needed as each Dining Room Set has 4 chairs (16 legs) and one table (4 legs) for a total of 20 legs per DRS. The work order will ultimately use 60 legs as we are building 3 Dining Room Sets.
When this work order is allocated, 60 LEG, 12 BACK, 3 TOP, and 12 SEAT will be allocated in inventory. Additionally, these quantities will be issued from inventory when the work order components are released to production.
When work order components are released to production, general ledger entries are made to the Inventory module for later posting to the general ledger. For each component, the cost of component will be credited to the component's Inventory account, and debited to the work orders WIP account. You may setup a default WIP account on the Production Setup screen so that users do not have to enter it each time a work order is created.
When this work order is closed, 3 DRS will be received into inventory and appropriate general entries are made to the Inventory module for later posting to the general ledger. The finished good's Inventory account will be debited for the sum of the cost of the components, and the WIP account specified by the Work Order will receive a credit for the same amount.
The picture above is a portion of the report that prints when work order components are released. We can see that our total cost of this work order is $1,740. This is the amount that will be used in General Ledger entries to credit inventory and debit the WIP account as seen below on the Inventory Posting to the General Ledger.
When the work order is closed and the finished dining room sets are placed into inventory we will see a cost of 1740.00 debited to inventory and credited to WIP. This has the effect of clearing out the WIP account.
Note that the unit cost of each dining room set is only $580 as we built 3 of them for $1740.
