Bill of material [BOM] is a list of all the materials or components that is used to assemble/manufacture a product. This detailed list comprises of all raw materials along with the standard quantity which is going to be used to manufacture one unit of the product. BOM can be specified while creating a stock item or while altering it. A BOM can be of single or multiple level.
Example: If a business is into production and sales of milkshakes, such business will need to create BOM of the milkshake in which they will specify various materials like syrups, ice creams, nuts, spoons, tissue etc.
To give a better understanding, let’s consider another example. If a business is into production of electrical switches, such business will need to create BOM in which they will specify materials like plastic powder, screws, nuts and bolts, wire etc.
From the above, it is understood that if a business has multiple stock items, like it can have different types of switches, in that case, we can create multiple stock items.
Areas of business: -
BOM is used extensively by manufacturing or in-house assembly business who combine the raw materials to create the final product.
Steps to create: -
- Create stock item as required.
- Enable to set BOM in stock items from configuration.
3. Then press ctrl+I or click ‘More details’ option.
4. Click on the option ‘components list’ to create the list.
5. Give an appropriate title to the list.
6. Mention the number of units that will produced using the materials.
7. Then create the list of all the materials that will be used to produce the final product along with their quantities and save the list.
8. Once the BOM list is created, pass the sales entry with items in normal way i.e. for adding an item use the BOM item which was created as in our example was “Strawberry Sundae Small”.
9. After passing the sales entry, the inventory will reflect negative figures. To change negative figure into positive, we need to create stock journal wherein we will create stock items in the books for which we have passed sales entry.
10. Once you pass the stock journal entry, you will be able to compare the cost of producing a particular item with the sales price of that item.
Effect of use of BOM: -
- It makes the valuation of stock easy as it comprises of each raw materials that are used to make a single product.
- Enables the person to know about the quantity of each material used for producing certain product along with its cost.
- Helps to monitor incoming and outgoing stock of all items.
- It makes the passing of sales entry easy, as we just have to add the final product rather than adding each item that will be used to create such final product.
Bill of material act as a powerful tool in tally which enhances speed and accuracy of accounting. Bill of material provides better clarity on the cost of final product. And the most beneficial feature is the inventory tracking.
(This article represents the views of the authors only and does not intent to give any kind of legal opinion on any matter)