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Re: Purchase parts/services same as sales?
- Subject: Re: Purchase parts/services same as sales?
- From: Keith Nybakke <..hidden..>
- Date: Mon, 15 Jan 2007 16:49:00 -0600
At 1:17 PM -0800 1/15/07, Chris Travers wrote:
If you create custom products, those can be handled as assemblies.
But I am not happy with the way that assemblies are currently handled
and we will certainly need to revisit this issue :-)
That is the usual first reply -- make an assembly. <vbg>
I understand this, but let me pose an example that better illustrates
A blacksmith makes a horseshoe from a bar of steel. There is only one
component in the assembly, a length of steel. But the end product
certainly has a value that is much higher than the value of the
single component. A blacksmith is not going to purchase one
horseshoe's worth of steel bar whenever an unshod horse appears. No,
he will have a raw material inventory of steel bar stock. He will
take what he needs from his inventory and fabricate one horseshoe.
I'm sure you are starting to get the idea behind the work flow in a
custom product job shop and how the accounting is different from an
value-added assembly business or resale operation or a service
provider. A blacksmith shop is a small-lot, custom product job-shop.
Yes, he creates and sells a product. But, it's a product that derives
its value primarily from the service portion of its creation, not its
material portion, so raw material is very close to just an expense
and is not as clearly accountable in the cost of goods sold.
In my business, inventory is just a "lump" of assets that varies a
little bit in its total value and in the mixture of the materials
that comprise that lump of assets. For quoting a job, the cost of the
raw materials is included in the calculation, but it is the value of
the service that drives the final product's sales price.
Thank you for your answers. It does help.