• Thu, 12 Sep 2024 22:53:41
• Module - Manufacturing
• On Prem,SaaS

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Hi Readers,

In this final part we look at subcontracting in Business Central.

You can access Pt.1 here - Link to Pt.1  and Part.2 here - Link to Pt. 2  and Part 3 here - Link to Pt. 3

 

Subcontracting happens when you give out work to another vendor because you dont offer the service internally.

In our example, we assume we have a brand of tables that have engravings which we outsource to a vendor for a cost of 3000.

We need to create an additional work center for that.

The direct unit cost is added and the vendor number is added on the subcontractor.

We need to recalculate our standard cost for this and make changes to our routing.

Avoid having your sub-contracted work center as the last one. It is added like above.

 

Re-calculate the item std cost 

 

 

The std cost is now 12,720 (9,720 + 3,000).

Create the released production order.

Then lets create a purchase invoice to the subcontractor. Search for subcontracting worksheets

Click calculate subcontracts and click on Ok.

A record will appear as follows. Click on Carry Out Action Message

A purchase order will be created with our vendor as the sub-contractor in the routing and our finished item on the purchase lines

 

Lets check the entries generated on posting.

 

 

GL Account	Debit	Credit	Source
WIP	3000		Inventory Posting Setup - Inventory Posting Group of the purchase item - WIP Account
Direct Cost Applied	3000		General Posting Setup - Gen. Prod Posting Group of the routing - Direct Cost Applied Acc
Purchase Account		3000	General Posting Setup - Gen. Prod Posting Group of the routing - Purchase Acc
Vendors		3000	Vendor Posting Group of the vendor

 

We can remember that we can have our Direct Cost Applied/Purchase Account to be same to have a 'zero effect'.

The purchase order will post directly to the WIP account and add the entries on the released production order.

If you open the production journal, you will note our engraving routing has a zero on the Output Qty meaning it has been consumed

Lets post our journal. I won't add any variances for this one.

 

It will be similar to calculation in 

Type	Qty	Cost	Total	GL Account	Source
Material - RM0001	1	4000	4000
Material - RM0002	4	800	3200
Material - RM0003	2	200	400
Material - RM0004	1	800	800
Total Material			8400	Credit to Inventory Account	Inventory Posting Setup - Inventory Posting Group of the BOM items - Inventory Account
		Cost of routing is from the work center card
Work Center - R0001	0.5	500	250
Work Center - R0002	0.5	400	200
Work Center - R0003	0.7	600	420
Work Center - R0004	1	450	450
Total Routing			1320	Credit to Direct Cost Applied	General Posting Setup - Gen. Prod Posting Group of the routing - Direct Cost Applied Acc
			9720	Debit to WIP	Inventory Posting Setup - Inventory Posting Group of the BOM items - WIP Account

 

We can now change the status of the production  from Released to Finished and see what happens.

An analysis is done by the document number of the finished production order & the posted purchase invoice combined

In a summarised format the full manufacturing posting would be :

GL Account	Debit	Credit	Source
On posting the purchase order
WIP	3,000		Inventory Posting Setup - Inventory Posting Group of the purchase item - WIP Account
Direct Cost Applied	3,000		General Posting Setup - Gen. Prod Posting Group of the routing - Direct Cost Applied Acc
Purchase Account		3,000	General Posting Setup - Gen. Prod Posting Group of the routing - Purchase Acc
Vendors		3,000	Vendor Posting Group of the vendor
On posting the production journal
WIP	9,720
Raw Material Inventory		8,400
Direct Cost Applied		1,320
On changing status of the production order to finished.
Finished Goods Inventory Account	12,720		Inventory Posting Setup - Inventory Posting Group of the produced item - Inventory Account
WIP		12,720	Inventory Posting Setup - Inventory Posting Group of the produced item - WIP Account

 

A sub-contract variance occurs where the cost of the PO becomes higher /lower than the cost on the subcontracting routing.

This marks the end of the 4-part series.

ENDS.