Managing Hybrid Inventory

QBO is designed to buy an sell a widget, so you can sell your in stock inventory items

manufacturing in QBO requires a work around using a work in progress (WIP) process.  You use inventory adjust, set the adjusting account to the WIP account you use, and lower the qty of items used.

You can sell the inventory to yourself for internal consumption, which while it might inflate gross sales is offset by the COGS of what you used internally. "Selling" it satisfies the two major requirements that 1. it be removed at fair market value (which still can generally be at cost) and 2. that in states where sales and use tax is in effect that you have appropriately charged yourself use tax on the inventory removal.

You can instead periodically adjust inventory but the use tax complication is not easily handled in that adjustment and must  be tracked separate

inventory used in the business is at cost, unless FMV is lower

Several states have a gross receipts tax (B&O tax, franchise tax, etc), inflating sales would increase that tax.

You can use the WIP process for your hybrid inventory, but another alternative is to use an app like Katana which focuses more on your manufacturing end of things. It tracks your hybrid inventory and reduces materials automatically for each manufacturing/sales order so your processes become automated. 

Your invoices/bills are pushed automatically to your QBO account.