The Complete Manufacturing Cycle: Workstations, Bills of Materials, Manufacturing Orders, and Cost Calculation

This guide explains the manufacturing cycle in the system from start to finish: workstations, bills of materials, manufacturing orders, issuing and returning raw materials, scrap materials, direct and indirect costs, how the product’s cost is calculated, all the accounting entries and stock movements, and production plans from sales orders.

Brief Workflow

First: Enabling and Settings

1. From the Apps Manager enable Manufacturing (it also requires enabling inventory, sales, and general accounting).
2. From Manufacturing Settings open Manufacturing Configuration:

Setting	Options (Default)	What It Does
Exceeding the Order Quantities in the Manufacturing Order	Allowed / Not allowed (Not allowed)	When allowed, quantities larger than the manufacturing order or materials that aren’t in it can be issued.
Adding Extra Items in Production Plans	Allowed / Not allowed	Adding products to the production plan that aren’t in the sales order or the invoice.
Scheduling Larger Quantities in Production Plans	Allowed / Not allowed	Quantities in the production plan larger than the sales order or the invoice.

And from the same page: set the production routes (the production stages), the custom order statuses (for follow-up only), and the custom fields.

Second: Workstations

From Workstations add the stations (a machine, a production line, a department) and their operating cost for each time unit:

Field	Explanation
Wages Cost and Wages Account	The labor wage for each time unit and the account it is charged to.
Asset and Asset Cost	The asset used (it must be in service) and its cost for each time unit. When depreciation is enabled, depreciation is recorded for the asset when the order is completed.
Other Expenses	Other operating expenses (electricity…) with an account and an amount.

The station’s total cost = wages + assets + other expenses for each time unit.

Third: The Bill of Materials (BOM)

From Bills of Materials create a list for each final product:

Section	Content
Basic data	The product, the quantity the list produces, the Account (mandatory — a work-in-progress account for the orders), active, default, the production route.
Raw Materials	The material, the quantity, the price, the production stage.
Expenses	The account, the cost type (fixed value / based on quantity / formula), the amount.
Manufacturing Operations	The workstation, the run time, the cost type.
Scrap Materials	The expected scrap product, the quantity, the price (its value is deducted from the cost).

The list total = materials + expenses + manufacturing operations − scrap materials. The Update Prices button updates the materials’ prices.

Fourth: The Manufacturing Order

Create it from Manufacturing Orders or from the Create Manufacturing Order button in the list. When the list is chosen, its materials, expenses, operations, and scrap are copied, multiplied by the required quantity. Save with Save as Draft or Save directly.

Status	Meaning	Available Actions
Draft	Not started	Edit, Issue
In Progress	Manufacturing is underway	Receive Raw Materials, Create Raw Materials Request, Return Materials, Complete Manufacturing Order
Completed	The final product was received	Undo Completion, Close
Closed	Permanently closed	Reopen

Receiving the Raw Materials (Issuing Materials)

The Receive Raw Materials button opens an issue requisition Manufacturing Order – Issue Materials with the remaining quantities, at the average cost price. Issuing can be done in installments. Or request them first with Create Raw Materials Request (requires enabling stock requests).

• “You cannot choose a product that isn’t included in the manufacturing order”
• “You cannot exceed the quantity of materials entered in the manufacturing order” (unless you allowed exceeding in the settings)

Returning Materials

The Return Materials button creates an addition requisition Manufacturing Order – Returned Items for the excess materials, within what was issued.

Fifth: Indirect Costs

To charge general expenses (factory rent, general electricity) to the orders, from Indirect Costs:

1. Choose the account and the period, then the debit entries for this account in the period.
2. Choose the distribution type: Based on Quantity (by each order’s quantity) or Based on Value (by each order’s cost).
3. Choose the manufacturing orders (in progress or completed) and save.

The total of the entries must equal the total distributed to the orders, and distribution cannot be made to a closed order or one whose delivery date is in a closed period.

Sixth: Completing the Manufacturing Order

Click Complete Manufacturing Order and choose the Main Product Warehouse, the Scrap Materials Warehouse, and the Delivery Date (and the tracking numbers if any). The system:

• Creates an addition requisition Manufacturing Order – Main Product at the actual cost.
• Creates an addition requisition for the scrap materials at their price.
• Records the depreciation of the stations’ assets (if enabled).
• Changes the order to Completed and creates the manufacturing order entry.

Warnings appear (and don’t prevent completion) if no materials were issued or the issued quantities differ from those required. Undo Completion deletes the product, scrap, and depreciation requisitions and returns the order to In Progress.

Seventh: Calculating the Final Product’s Cost

Unit cost = (materials actually issued − returned + expenses + manufacturing operations + indirect costs − scrap value) ÷ quantity produced

• The materials are at the actual cost (the average cost at the time of issue), not the estimated cost.
• Manufacturing operations = run time × the station’s cost.
• The Total Cost Report tab in the order compares the estimated with the actual for each line.

Eighth: Accounting Entries

The manufacturing order account (chosen in the order) works as a work-in-progress account:

Operation	Debit	Credit	Date
Issuing raw materials	The manufacturing order account	The warehouse account	The requisition date
Returning materials	The warehouse account	The manufacturing order account	The requisition date
The manufacturing order entry (at completion)	The manufacturing order account	The accounts of wages, expenses, asset depreciation, and indirect costs	The delivery date
Receiving the final product	The product warehouse	The manufacturing order account	The delivery date
Receiving the scrap	The scrap warehouse	The manufacturing order account	The delivery date
Station asset depreciation	Depreciation expense	Accumulated depreciation	The delivery date

Ninth: Production Plans

From a sales order or an issued invoice, click Convert to Production Plan, or create it from Production Plans: specify the products, the quantities, and the bill of materials for each product, then Issue. A manufacturing order (in progress) is created automatically for each line.

Restrictions and Important Messages

• “The manufacturing order must be in progress before it can be completed”
• “The asset you chose in workstation %s is not in service, so the manufacturing operations must be updated”
• “You cannot delete the manufacturing order if its status is completed or closed”
• “You cannot delete or renew the request if manufacturing order #%s is closed or completed”
• The order’s account cannot be changed after materials have been issued for it.
• A delivery date in a closed period prevents completion.

Permissions and Reports

Separate permissions for each of: manufacturing settings, production routes, workstations, production plans, bills of materials, and manufacturing orders (add, view all or own, edit/delete all or own). Issuing raw materials requires adding a stock requisition.

Reports: Manufacturing Orders Costs (filtering by the order, the list, the product, the account, and the type), and the Total Cost Report tab in each order.

Frequently Asked Questions

Why does the product’s actual cost differ from the bill of materials cost?

Because the actual cost is calculated from the materials actually issued at their average cost at the time of issue, in addition to the indirect costs.

Must the raw materials be issued before completion?

It is recommended; the system warns but doesn’t prevent it, and without issuing, the product’s cost is incomplete.

How do I charge the factory rent to the products?

From Indirect Costs, by distributing it to the manufacturing orders.