Option 1: Items Purchased from a Vendor and Sent to Another for Processing
This is an approach to cases where inventory is purchased from one vendor, shipped directly to another vendor that further processes it, and then received.
- Buy the raw item part number. Consider purchasing it to a separate warehouse such as At Vendor.
- Override the ship-to address in the Logistics tab to show the address of the second vendor.
- When you have notification that it has been received at the second vendor, copy it to a Goods Receipt. Process the A/P Invoice as normal.
- Create a Purchase Order for the completed item from the second vendor.
Note that the cost on this Purchase Order is $6 per lineal yard. That is what the second vendor will get for the quilting material and the labor they have added. This Purchase Order does not reflect the full value of the completed item.
- Process the Goods Receipt for the quilted cotton fabric when it is received. Note that the Goods Receipt debited inventory by $60.
- Issue out the original cotton fabric to record the reduction in inventory at the second vendor.
The $70 value has gone to an inventory gain loss (52300000-01-001-01 in this example).
This $70 must be included in the value of the completed quilted cotton fabric. It will be done with a material revaluation.
The inventory audit report shows that we now have no CottonFabric and 10 lineal yards of QuiltedCottonFabric for a total value of $130. That is comprised of $70 for the original white cotton and $60 for the quilting and labour.
Once the A/P Invoices are entered, the outstanding payables show $70 for one vendor and $60 for the other.
Option 2: Items Sent Out for Processing
A similar process is required for the inventory items sent out for additional processing. For example, the fabric could already by in the warehouse and sent to a vendor to process it into another item.
Use this approach to track the inventory of each item with the total value:
- Create a Purchase Order that includes two lines.
- One line for the quilted fabric with a unit price that includes both the vendor’s charges plus the current value of the original cotton fabric.
- One line for a negative quantity for the cotton fabric at the cotton fabric’s current value
- Transfer cotton fabric to the At Vendor warehouse.
- Create the Goods Receipt PO document from the Purchase Order. Adjust the prices to match the current value of the cotton fabric and the full value for the quilted fabric. This will add the inventory of the quilted fabric and relieve the inventory of the cotton fabric.
- Create the A/P Invoice from the Goods Receipt PO. Verify the NET value matches the vendor’s invoice.
Please sign in to leave a comment.