Our company is discussing changing to treat fasteners and other similar inexpensive, common parts as expensed items and not inventoried. Any suggestions on how we might want to handle this in Epicor?
For starters, I was thinking we’d change the part class GL Control for our fastener class to refer to a expense account that we’d setup for this.
Then I imagine the costs will flow to/from that account for the part as it’s transacted through POs/jobs, etc.
What happens with the quantity on hand, though? We want to keep the quantity on the BOM as it does have some relevance and information purposes… but we don’t want to inventory them. They are “infinite” for lack of a better term. Suggestions?
I believe all that you want to do is create a new GL Control Code and only enter an account under the Expense context. When you receive the parts, it will hit the Expense account and the $$ will not go into inventory.
You will want to zero out the cost on these parts too as they are not hitting inventory and any subsequent transactions should be captured at $0.
We had a great finance guy from Epicor during our implementation and this is how we do this for overhead items. We are lot fifo costed, so we used standard cost for these items and set the standard to zero.
when the items are received they have value and go into inventory, when the invoice is applied the standard of 0 uses the ppv account and pushes the value to the expense account and now inventory value for that item is zero.
You can do them either quantity bearing or not, but they won’t have cost on a job as they are now overhead.
So I think what you’re saying is that regardless of how we handle inventory, there will not be a cost associated to the parts that show on hand. If we don’t want to inventory those items, we don’t have to…
I’ll be running this through some testing and I may have more questions. But thank you both for helping to steer me down a good path.
@gpayne@jkane - We’re average cost. If I set my avg. cost to 0, then the next time I buy it it will have cost added again and mess it all up, right? Would I set the part as non-qty-bearing maybe?
Average cost gets calculated when the parts get received into inventory. If you set the GL Control to an Expense account, I don’t believe the cost calculation will run (but test). I am also not sure how it will work if you were using the cost for POs. Setting it to 0 will make all the POs 0 unless you have Supplier Price Lists set up.
@gpayne Oh OK. You are saying to switch any parts that are expensed to use Standard Cost. I could see why that would help given what we just talked about.
@jkane Yes the more I think about it, I would need to switch to Standard Cost because no matter what, we have to buy the parts and pay our supplier. So the cost will follow the part into inventory… I think. But maybe not if it’s an expense account. Hmmm. Things to play around with
This seems like a good option if the part record is a useful reference for purchasing. You get to keep part transactions so you have a relational purchasing metric. If someone decides later that it’s worth the effort to track on hand 3/16" plain washer inventory, you’re one checkbox and a part class switch away. Well, and likely adding them to a bazillion boms…
Cost method shouldn’t make any difference since non-quantity-bearing never touches inventory, but do verify that in your own situation!
The way we handle this is we have a Part Class set on the part that points to an Expense account. We also set the part to non-Quantity Bearing so that all POs for the part automatically are “Other” type POs. When we receive the PO, the costs directly go to the expense account on the part class. Note that changing to non-quantity bearing automatically makes the part Standard cost, but this won’t affect purchases to “Other” (the purchased/invoiced cost still goes to the expense account).
The parts are not backflushed so that the job does not capture the cost of the parts. Like others have said, the cost of these are overhead so it would be captured in your burden or material burden. Alternatively you could backflush or issue these parts and the cost would go from the expense account on the Part Class into WIP as part of the finished goods you’re making. That’s going to be a decision by management on if you want to keep this as a below-the-line cost or capitalize it as part of your finished goods inventory/COGS when you produce parts that use the fasteners.
This is what we’ve been doing since day one. Our “expense” parts are non-stock, non-qty bearing. Doesn’t matter what Part Class they’re in. They don’t impact inventory levels or costing at all. They’re purchased to “other” under an manufacturing expense GL.
Just like buying paper towels and the PO gets set to an Office Supplies GL. They’re not stocked, they don’t impact inventory.
We also have some vendor managed inventory where the vendor comes in, looks at our crib, restocks what they need to and sends us an invoice. This means we don’t even require a PO. The Invoices come in and are paid via misc. invoice instead of from receipts (in these cases). They’re just absorbed in overhead.
There’s so many good suggestions in the messages above. You’re all bringing it faster than I can test it. I really appreciate the insights, wisdom, and gotchas. It sounds like we’re not the first people to try to do this. So there’s options.
You can use non-qty bearing. That requires standard costing, as average cannot be updated without an inventory on hand. When you do it that was, you can still issue to jobs, or back-flush. The PO comes into other, and the cost on the job can still hit COGS. You just aren’t trying to account for every single tiny piece.
Yeah, in my opinion, the only reason you may want to have an “expense” item as a stock item is if you are REQUIRED by your internal processes to issue them to jobs. If so, they have to come from somewhere (or be bought directly to the job, I suppose).
But in our case, our expense items are on job bills, but never get issued. We don’t care about the pennies and nickels for standard bolts, washers, etc.
If its a specialty bolt/fastener that is huge, or specialty coated, etc. then that’s a different story and we don’t consider that an expense item.
