The company I work for uses a co-packer for two of their items. We send all of the raw materials and packaging to them and they produce the pouches we need and send them all back in huge boxes. We receive them, package them into their cases, and ship them out to our customers. Here are my questions:
1. They have the co-packing services set up as a service for one and "other charge" for the other item. Shouldn't they both be set up as a service? They also have the account listed as an inventory asset account.
2. Each item has their own number and a corresponding item (ex., item 100 and item 100-c) included in the build so it can pull in the materials used at the co-packer. The co-packer has a build (including the raw materials and packing needed to make the item) and then there is another build used to package the product in our facility when it is received back. (co-packing item 100-c and the remaining packaging needed to ship out). The 100-c item is in our inventory valuation as an assembly item even though it always shows 0. Is this correct?
3. Lastly, when we send out the material to the co-packer, it's shown in QB as a transfer to an offside warehouse. When it's received, they create an item receipt using the service and the other charge item number and use the cost the co-packer charges them. The balance sheet shows the difference as that exact item receipt. How do we receive the items back into our inventory?
The items were not set up properly and I need to know how to create a better process.
Thank you so much for any help you can provide!!
There is more than one way to handle this. I didn't completely understand your process - so this is more discussion than answer.
It sounds like the 'raw materials' you talk about are actually finished widgets that just need to be packed.
I am guessing that the 'warehouse transfer' process was chosen to help in reconciling the 'raw material' inventory and account for the items that are 'missing' while at the packer.
The packing fee should probably be a 'service item' - other charge items are thinks that go below the first subtotal on an invoice.
You are using 'assembly item' which is good. That probably means you have QB Premier (or Enterprise) - which also means you should access to use 'multiple units of measure'. Look for this option. But how to use it depends on how you like to count your inventory. If you count and sell by the case - then 'case of widgets' does need to become its own separate assembly item. But if you tally the total widgets within all the different cartons then 'MUoE' is the way to go.
For separate items then the first assembly should be 1 raw widget + 1 pouch + 1 packing fee = 1 packaged widget. Second assembly (if no MUoE) would be +10 packed widget = 1 case (final sales item)
Not sure how 'item receipt' come into this - unless you are actually recording the assembly as a vendor purchase? Thats a different alternate QB path that bypasses the first assembly.
Any inventory and assembly items should have both Count and Value records in Inventory (unless theres no stock). Valuation is always zero sounds wrong - but im unclear.
Thanks for your response!
Sorry if my post was unclear. I knew the item receipt was wrong and I was talking through another way to bring the items back into inventory. My thought process was to bring them back in my using the first assembly which included the raw material and the packaging to make the pouch. We know how many was made from the item receipt. Then once they are packaged and "built", I can enter the second assembly build to bring the cases into finishing goods. Correct?
Glad to hear to again from you, @mb722.
I'm here to share additional insights on how you can create and build your inventory assembly items.
To cover the labor cost in packing your item and other fees, you're correct in creating a service item for it.
You'll also need to create an inventory item for each item or raw material that will be part of the inventory assembly.
Here's how to add an inventory item:
Once completed, you can now create the assembly item with the service item on it.
By following this process, you'll be able to track the total cost for each item included on each assembly.
I have already entered a bill for the packing fees, but I used the service, not the assembly item build.
I changed the PO to the assembly item build number for the items I need co-packed. So, the raw material, packing, and service. Then I changed the item receipt to show us receiving the assemblies, not the service. This brings it into inventory so when the packing of the cases begins, they will have the first assembly of items to use for the finished goods. If there is a different way, please let me know.
Thank you so much for your help.
You're on the right track, @mb722!
Allow me to join in your conversation with @MikeinBC and share a little more information about your inventory assembly.
With QuickBooks, what you've been doing is correct. In addition, you can also create a purchase order for your inventory assembly. Here's how:
This way, you'll be able send a proposal of your inventory assembly for your vendor. I've also, included our detailed guide in creating your purchase order.
However, I'd recommend contacting your accountant. He/she will be able to help and guide you further in choosing the accounts of your inventory assembly build.
Please let me know if you have any other questions about QuickBooks Desktop. I'll be always around ready to help.
I understand what you are saying. My question first and foremost is how to bring those items back into inventory from the co-packer.
What other suggestions would you have?
As i tried to say, there are 2 choices: Buy the finished item from the vendor, or 'Build Assembly'.
Since you have assembly item method available I suggest you use it.
For now assume that that there is no 'transfer to another location' and all inventory is in one pool.
That is up to the point where you received the bulk box - assuming that the items have all been defined correctly including the assembly BoM
Repacking into cases can be handled by a second build assembly of a separate 'case' item