Bill of Materials for Assemble Items (Manufactured Products)

A Bill of Materials (BOM) is like a recipe that defines everything you need to manufacture a finished item. In Wafeq, the BOM does more than list the raw materials and quantities required. It also allows you to define standard operating costs, such as labor and overhead costs, and account for expected material loss through the Yield %.

This helps you establish an accurate standard cost for the finished item before you start the actual manufacturing process.

Note: The BOM is for reference only. It does not create accounting entries or inventory movements. All figures in the BOM are standard figures, while the actual cost is calculated later when you execute a manufacturing order.

Adding Raw Material Items

Before creating a Bill of Materials (BOM) for manufacturing any item, make sure that the required raw materials are available in sufficient quantities to complete the manufacturing process, and that each component has an accurate cost.

Raw material items are the basic items that you purchase from suppliers and store in your warehouses in their original form before they are consumed during manufacturing, such as wood, nails, and fabric.

You add raw materials the same way you normally add Items in Wafeq.

To add a raw material:

From the main menu, go to "Inventory", then select "Items".

Click "Add" to create a new raw material item.

Enter the raw material name, unit of measure, such as kg, meter, or unit, and complete the remaining details.

Click "Save".

In most cases, the Assemble Item is the finished item that you intend to sell. However, in some multi-stage manufacturing processes, you can manufacture a sub-assembly, store it in your inventory, and then use it later as a component in the BOM of another, larger item.

We won't cover the setup of sub-assemblies in this guide. Once you understand how to set up and manufacture a finished item in the following sections, you can easily apply the same steps to manufacture any sub-assembly and include it in more advanced manufacturing processes.

Setting the Quantity and Cost of Raw Materials

For Wafeq to accurately calculate the manufacturing cost of the finished Assemble Item, each raw material must have an actual cost (average unit cost) and an available inventory balance.

The cost and balance of the raw material are determined by the item's purchase transactions in Wafeq. Alternatively, you can adjust them manually using Inventory Adjustments.

For more information, see the Inventory Adjustments guide.

Adding a Assemble Item and Setting Up Its BOM
Once you have added the required raw materials, you can create a Assemble Item and set up its BOM.

To add a Assemble Item:

From the main menu, go to "Inventory", then select "Items".

Click "Add", or open an existing item to edit it.

Enter the item name and select "Assembly" as the item type.

Complete the item's basic details, then click "Setup" to open the BOM.

BOM Details

Once you open the Bill of Materials (BOM), you can add the components required to manufacture one unit of the item and specify the required quantity for each component.

Adding Components and Costs

Start by completing the following fields:

Supply Method: Select Assembly add the item to inventory after it is Assembly.
Component Item: Select the raw material used in the manufacturing process. The component must already be added as an Item in Wafeq.
Quantity per Unit: Enter the quantity of the component required to manufacture one unit of the finished item.
Unit of Measure: Select the unit used to measure the component, such as piece, kg, or meter.
Yield %: Enter the percentage of the raw material that remains usable after accounting for normal loss or waste during the manufacturing process.

Example of Yield %

Suppose you need 1 meter of fabric to manufacture a shirt, but the cutting process normally results in 10% waste. This means the net usable yield is 90%.

When you enter 90% in the Yield % field, Wafeq understands that part of the material will be lost during manufacturing. It will therefore increase the quantity withdrawn from inventory to ensure that the required net quantity is available for production. In this example, approximately 1.11 meters of fabric will be withdrawn to provide 1 usable meter.

When should you use Yield %?

Yield % is mainly intended for components that can be divided and are measured by length, weight, or area, where some material is normally lost during preparation or processing, such as:

Wood
Fabric
Metal

For components that are counted by piece, such as nails or legs, leave Yield % at its default value of 100%.

You can enter a value below 100% for a piece-based component, but Wafeq will calculate the resulting quantity without rounding. For example, this could result in 8.89 nails being withdrawn from inventory.

Note: The increase in the quantity withdrawn is not calculated by simply adding the waste percentage to the required quantity. Instead, Wafeq divides the required quantity by the yield percentage. Therefore, a 50% yield means that the quantity withdrawn will be doubled.

Accounting note on planned waste

The additional quantity calculated by Wafeq to account for the Yield % is treated as planned waste within the product cost. Therefore, this wasted quantity does not appear as a Usage Variance in cost reports unless the actual consumption exceeds the specified yield allowance.

If the actual consumption exceeds the planned quantity: The variance is positive, meaning that consumption is higher than planned. This is an unfavorable variance that increases the production cost.
If less material is consumed than planned: The variance is negative, meaning that consumption is lower than planned. This is a favorable variance that reduces the actual cost, while the unused materials remain in inventory.

Standard Cost: The Standard Cost is the estimated cost of one base unit of the component. It serves as a reference cost that Wafeq uses to compare planned costs with actual costs after manufacturing is completed.

You can set the standard cost in one of the following ways:

1. Enter a value manually

When you enter a specific value manually, Wafeq uses that value as the fixed standard cost for the component.

This allows you to analyze cost differences and distinguish between:

Purchase Price Variance: Caused by changes in the material's purchase price from the supplier.
Quantity Variance: Caused by consuming more or less material than planned.

2. Leave the field blank

If you leave the field blank, Wafeq suggests a value based on the material's moving average cost in inventory.

Because the automatically suggested cost is the same as the actual cost, no price variance is calculated. The report will instead focus on the difference in the quantities consumed.

Note: If the component itself is a Assemble Item and you leave its standard cost blank, Wafeq calculates its standard cost by aggregating the standard costs of the components in its BOM.

3. Enter 0

Entering 0 explicitly tells Wafeq that the material is free and has a zero cost. In this case, Wafeq will not suggest or retrieve an average cost for the material from inventory.

Important: Enter the standard cost based on the component's Base Unit, not the unit selected in the BOM line.

For example, if the wood's base unit is meter and you select centimeter as the unit in the BOM line, enter the cost per meter, not the cost per centimeter. The conversion factor between the two units affects the quantity withdrawn only; it does not change the cost.

To add another raw material to the BOM, click "Add Component".A new row will be added to the BOM table, where you can select another "Component Item" and specify its quantity and cost.

You can add the labor costs associated with manufacturing the item by clicking Add Labor.

Select the account you want to charge the labor cost to, such as Labor Costs.

Enter the cost amount.

If this is your first time adding labor costs, you can create a new account directly from the "Account" dropdown next to the labor line.

Select "Create Account", enter the account name, such as "Direct Labors", and select an appropriate parent account, such as "Cost of Sales".

You can add indirect manufacturing costs associated with producing the item, such as:

Electricity
Rent
Machine maintenance
Any other costs related to manufacturing the item

Click "Add Indirect Costs".

Then select the account you want to charge the cost to, such as "Indirect Costs", and enter the cost amount.

Once you have added all the required components and costs:

Review the BOM details.
Check the cost to build one displayed at the bottom.
Click "Save" to save the BOM.

Then click "Save" again to save the Assembled Item.

After saving, you can find the Assemble Item in the "Items" list. Its available quantity will be zero, since no manufacturing operation has been completed for it yet.

You can also import Assemble Items in bulk and perform actions such as searching and filtering them, just as you do with other Items, from the "Items" list.

Once you have set up the Raw Material Items, Assembled Item, and BOM, you can move on to the next step: orders, which we cover in the next tutorial.

For more information, see the Production orders guide.