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Re: Purchase parts/services same as sales?

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 my problem:

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.

 [snip more]

Thank you for your answers. It does help.