Exercise 7 Guide

Quick Guide on Smartbooks Basic with Analytics
Chapter 7: Production
At the end of this chapter, the student will be able to:
1. Create the Bill of Materials (BOM) for various parent item
2. Use the production module in processing production orders
Overview of the Production Process
The production order is the main document in the production process. It records the progress of
the production process for each item produced. It supports the planning and assembly of a production
item. It also tracks all the material transactions and costs that are involved in the production
process.
Before work can be done, production orders must be released. At this point, the production
order can begin collecting the costs of production. Components used in the production process can be
issued manually as used or backflushed at the end of production.
When all work is done, you report completion of the production order. At this point, the
finished items are received into the warehouse, then change the Status to Closed. Even after the
production order is closed, details on the production order costs can be found on the summary.
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Types of Bill of Materials (BOM)

1. Production - This BOM is used in the production order. The parent item is a finished material,
and the children are the components. You can add labor as one of the components; this will
be a non-inventory item with a standard cost. During the production process, you turn the
components into the finished product. The Production BOM is the only type used in the MRP
run and it is always used in standard production orders. The item at the head of the
Production BOM has its own price.
2. Sales - This BOM is used in sales documents. The parent item must be a sales item only. For
example, if you sell a gift package that contains multiple products, this could be set up as a
sales bill of materials. The parent item will be the package name, and the children will be the
inventory items inside the package. Once you selected the parent in a sales document, all its
children appear as sub-items. You can update the quantities of the parent or the children;
however, you cannot delete children or add new sub-items to the package in the sales
document.
3. Assembly – This BOM is similar to the sales bill of materials. It represents a collection of
individual items in a set with a specific price. Unlike the sales bill of materials, only the
finished product appears in the sales order document; the components do not appear as sub-
items.
* For both the sales BOM and the assembly BOM, you do not manage the finished product as an inventory
item, but rather as a sales item. The components can be sales items and stock items at the same
time.
4. Template - This BOM has no restrictions. Both the parent and the children can be any type of
items. It can be used in sales and purchasing document. Once you select the parent item, all
its children appear. You can delete, add, or duplicate rows and make any modification as
necessary.
Category for the Parent Item

You have to create item master records for the finished products in the system. These are represented by
the parent item in the bill of materials.
Types of Production Order
Order is a command to produce or repair a production item. The production order supports the planning
and assembly of a production item. It also tracks all the material transactions and costs that are involved
in the production process.
The production order document records the finished material to be produced, its components and their
issue method. In all cases, a production order must list the items involved in the production process.
With the standard and disassembly production orders, a production bill of materials is used to describe
the items used during production.
In the make to order process, a production order is created manually for each sales order that creates
a demand. Before any further transactions can be associated with the production order, such as goods
issues, the production order must be released by an authorized user.
When components are issued to the production order or when finished products are received into
inventory, an accounting document will be created automatically to document the costs associated
(as long as you are using perpetual inventory).
Smartbooks supports three types of production orders:

a. Standard Production Order
b. Special Production Order
c. Disassembly production order
d.
Standard Production Order
The Standard Production Order is based on the production BOM; you use it to produce a regular
production item. You manage material transactions of the regular production process. In addition, you
can change components at the production stage. When you open a new standard production order,
all the components fill in automatically. You issue components from inventory to the production order.
After production is completed, you receive the finished parent product into inventory.
Stock Change
In a standard or a special production order, components are issued out of inventory. When the production
order is completed, the finished product is received into stock. The details of the stock movements are shown
above.
For disassembly production orders, the stock effect is reversed. The disassembled finished product is removed
from stock and the components are added into the inventory.
Production Process
Main Steps in the Production Process
Create the Production Order
• Select production order type
• Select parent item
• Enter quantity to be produced
• Enter a finish date for production
• Make any desired adjustments to components, warehouses or quantities
• Save the production order
Release to Shop Floor

• Initially set as Planned
• Release the order to begin work
Issue Components
Components can only be issued when the status of the production order is set to release. You issue
component items using either the Manual or the Backflush Method. Items that are managed with serial
numbers or batch numbers cannot be backflushed; therefore, they are automatically set to a manual issue
method.
a. Manual
You issue individual component items to the production order. This enables you to post components
issued to a production order precisely when they are required in the production process. Manual issue is
always used for serialized or batch-managed items.
b. Backflush
Smartbooks automatically issues item transactions for the needed component items (as defined in the
Components tab) when a product is reported as completed. Items that are set to backflush are issued
automatically when you choose Report Completion.
Report Completion
At the end of the process, you report completion of production. This will receive the finished item into
inventory and calculate the cost of producing the item. Use the context menu to choose Report
Completion.
For Standard and Special Production Orders, reporting completion posts the finished product to the
inventory. For Disassembly Production Orders, reporting completion posts the components to the
inventory. At this stage, you could also reject items. Serial numbers and batches can be assigned at this
point.
Posting Information
On the Summary tab page, you have the information that summarizes the production order. The tab
displays the information on the released and closed production orders.
• Actual Component Cost: Displays the total value of all components issued to the production order.
• Actual Additional Cost: Displays the actual additional costs that occur when a component is
defined in the Item Master Data as a non-inventory item. This can be, for example, a service or
labor cost. If there is more than one additional cost for the item, the cost displayed is the sum of
all additional costs.
• Actual Product Cost: Displays the total value of all products assembled for this production order.
• Total Variance: Displays the value that is the result of the actual components value subtracted
from the actual products value.
• Variance Per Product: Displays the value that is the total variance divided by the planned quantity
value.
• Variance %: Displays the percentage of the variance per product value.
• Journal Remark: Displays the product number by default. The value is saved in the General Ledger
and is displayed during the General Ledger transactions and reports. You can modify the value of
the field.
• Quantities - Planned Quantity: Displays the total planned quantity of the production order.
Completed
• Completed Quantity: Displays the total completed quantity after you report the production
completion.
• Rejected Quantity: Displays the total rejected quantity of the production order.
• Dates - Due Date: Displays the due date of the production order.
• Actual Close Date: Displays the date when the production order was closed.
• Overdue: Displays the number of days that the actual close date exceeded the due date.
Cost of Goods Sold

The Cost of Goods is summarized in the Summary tab of the Production Order. After the completion of
the item, the Production Order status should be changed from 'Released to Close'. In doing so, the Actual
Closing date will be reflected and Variances will be reported if there is any.
One can check the corresponding Journal Entry generated by the transaction by clicking on the golden
arrow beside the Journal Remark field.
Defective and Spoiled Units

There are cases when the item expected from production does not meet the criteria for completion. In
Smartbooks, this must be tagged in the system as 'Reject' in the TYPE field in the Receipt from Production
Window.
Steps in Production Process
Add Items in the Item Master Data

Add the items by following the steps provided in Chapter 3, Item Master Record. (Click the underlined words to be
redirected in Chapter 3).
The company decided to produce a Printer by combining its various materials.

Add the following items on the Item Master Data:
Finished Goods
Item Code: FG ITEM 1
Item Name: Printer
Item Category: Items
Item Class: Merchandise Inventory - FG
Raw Materials
Item Code: RM ITEM 1
Item Name: Printer Body
Item Class: Merchandise Inventory - RM
Price List: Base Price
Price: ₱2,000.00

Item Name: Printer Support
Price: ₱600.00

Item Name: Printer Cable
Price: ₱200.00
Assemble the items based on this diagram:
The diagram above shows the production process of Printer. Items such as Printer Body, Printer Support,
and Printer Cable are being assembled to produce the finished good.
Create Bill of Materials

• Go to Production > Bill of Materials
• In the Product No/Product Name field, click the selection list to view the list of items to select
with. Double click the item name or select it then press the ‘OK’ button. Make sure that you are
selecting the item tagged as Finished Goods.
• In the Materials tab, select the item by clicking the selection list the Item Code/Item Description
column then performing double click on the item or selecting it then click the ‘OK' button. Make
sure that you are selecting the items tagged as Raw Materials.
• After selecting the item, price per quantity will reflect. Adjust the quantity in the Quantity
column.
• Once you are done, click the ‘Add’ button.
• Do the same for the rest of the raw materials. Upon finalizing all the details, click the ‘Add’
button at the right-most portion of the system.
• A system message will appear, click ‘OK’.
• You will know that it has been saved if you see the successful system message below and the
word ‘POSTED’ will appear on the right upper corner of the document.
Create Production Order
• Go to Production > Production Order

• In the Product No/Product Name field, click the selection list to view the list of Bill of Materials
to select with. Double click the item name or select it then press the ‘OK’ button.
• In the ‘Planned Quantity’ field, change the quantity based on the no. of items being produced.
You will notice that the planned quantity of the component items will automatically change.
• In the ‘Completed Warehouse’ and ‘Rejected Warehouse’ field, click the selection list to view the
list of Warehouses to select with. Double click the warehouse name or select it then press the
‘OK’ button.
• In the Order Date and Due Date, the user can change the date based on the specified date.
• Once you are done, click the ‘Save’ button.
• You will know that it has been saved if you see the successful system message below.
• Before issuing the raw materials to production, change the status of the production order by
clicking the dropdown list on the ‘Status’ field then select ‘Released’
• Once you are done, click the ‘Update’ button.
• You will notice that there are pending items, however, there are no items on the ‘In-stock’
column. Before issuing the items to production, you have to restock these items first.
Restock Items
To restock all the raw materials needed in the production, perform the purchasing process by following
the steps in Chapter 5, Purchase Process. (Click the underlined words to be redirected in Chapter 5).
Note: You may purchase quantity higher than needed to avoid item stockout.
Issuance of Items to Production
To issue the items to production,

• Go to Production > Issue for Production
• In the lower left portion of the document, click the arrow in the Copy From button and select
Production Order. This process will let you capture the details of the base document previously
added.
• A pop-up window will appear with all the list of Production Order. Select the specific Production
Order you are going to process into issuance by ticking the checkbox and then clicking the ‘Choose’
button.
• A final window will appear with the specific Production Order with an ‘enable edit’ on the quantity
and price. In here, you can modify the details as to the actual items issued to production. Click
‘Finish’ button if all details are final.
• In the ‘Notes’ field, you will notice the document basis of the items issued to production.
• Click ‘Save’ button to add the document.
• A system message will appear. Click OK.
Receipt from Production
After the issuance of the items to production, we will now complete the production process by receiving
all the finished items from the production.
To receive the items from production,

• Go to Production > Receipt from Production
• Select the ‘Receipt Type’ by clicking the dropdown on the field and choose ‘Completed’.
• In the lower left portion of the document, click the arrow in the Copy From button and select
Production Order. This process will let you capture the details of the base document previously
added.
• A pop-up window will appear with all the list of Production Order. Select the specific Production
Order you are going to process into receiving by ticking the checkbox and then clicking the
‘Choose’ button.
• A final window will appear with the specific Production Order with an ‘enable edit’ on the quantity
and price. In here, you can modify the details as to the actual items received production. Click
‘Finish’ button if all details are final.
• In the ‘Notes’ field, you will notice the document basis of the items received production.
• Click ‘Save’ button to add the document.
• A system message will appear. Click OK.
Exercises
Refer to Exercise on the workbook provided by your instructor.

Exercise 7 Guide

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Quick Guide on Smartbooks Basic with Analytics

Overview of the Production Process

Types of Bill of Materials (BOM)

Category for the Parent Item

Types of Production Order

Smartbooks supports three types of production orders:

Release to Shop Floor

Cost of Goods Sold

Defective and Spoiled Units

Steps in Production Process

Add Items in the Item Master Data

The company decided to produce a Printer by combining its various materials.

Item Code: RM ITEM 2

Item Code: RM ITEM 3

Assemble the items based on this diagram:

Create Bill of Materials

Create Production Order

• Go to Production > Production Order

Issuance of Items to Production

To issue the items to production,

Receipt from Production

To receive the items from production,

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