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Inventory in Master Builder
First, a little editorializing:
Once you’ve used the Inventory module in MB a few times, you’ll find it is pretty easy to use. The real challenge is establishing consistent communications between the person(s) managing the physical inventory, and the purchasing and accounting departments.
The only way I’ve seen a company successfully manage inventory in MB is for the above parties to communicate daily, in writing any changes to inventory, whether it is physical count or pricing. The second mandatory procedure in order to achieve a successful inventory management system is a regular physical count (monthly is preferable, quarterly is the minimum). Without these two elements, it’s unlikely one will be successful. Note that both of these elements fall outside of the Master Builder program.
Second, a few conventions:
Physical parts usually arrive into Inventory in MB two ways:
1. An AP Invoice (often generated by a Purchase Order Receipt)
2. Allocated back to Inventory from a Job using the Inventory Allocation screen.
Physical parts usually leave Inventory in MB two ways:
1. Allocated from Inventory to a Job using the Inventory Allocation screen
2. Adjusted out of Inventory for a reason using the Inventory Allocation screen.
The Inventory Allocation screen has only 4 combinations:
1. Source (an Inventory Location) / Account (Materials account if going to a Job)
2. Source (an Inventory Location) / Destination (a different Inventory Location)
3. Account (Materials account if coming from a Job) / Destination (an Inventory Location)
4. Source (an Inventory Location) / Account (Overhead account if adjusting for shrinkage etc.)
Once you perform a half dozen transactions in the Inventory Allocation screen, you will totally understand it. That screen, plus the P.O. Receipt screen, will account for almost all of the physical movement in Inventory. Please see below for details.
The following is compiled from experience and accepted training procedures:
Definition of Inventory: Materials stored for use at a later time.
Materials may be either:
1. Purchased and expensed directly to a job, or
2. Purchased and received into inventory as an Asset, then expensed to the job as they are used.
Master Builder provides an affordable, easy to use inventory system designed specifically for construction companies. MB inventory is fully integrated with estimating, purchase orders, accounts payable, job cost and service receivables.
Purpose of Inventory:
1. Improved Financial and Job Cost Reporting
2. Matching Principal – recognize the cost at consumption and revenue recognition.
3. Track the movement and location of materials
4. To protect the asset from loss
5. Maintain accurate valuation of remaining inventory
Other Benefits of Inventory:
1. Avoid shortages on the job by having materials on hand to improve workflow.
2. Take advantage of volume discounts
3. Lock in current prices.
Costs of Inventory:
1. Storage costs
2. Carrying costs – what else could your money be doing?
3. Depletion – loss due to weather, theft, etc.
4. Decreased value due to obsolescence
5. Possible taxation of tangible property
You can minimize costs with just-in-time inventory:
Materials are ordered to arrive just as they are needed for production and in the minimum required quantity. This holds down the cost of inventory while maintaining the stock necessary to do business.
Average Cost Valuation Method
MB often uses the Average Cost method of inventory valuation.
• Average cost is based upon the cost of items received divided by the quantity on hand.
• Items going out of inventory do not affect average cost.
• Average cost is affected by the purchase of new items.
• All parts go out of inventory at Average Cost
Inventory Setup
Setting up the inventory module involves 3 steps:
1. Create Inventory Locations
2. Setup Inventory Parts
3. Enter the beginning quantities and values
12-3 Inventory Locations
Inventory locations are like a sub-ledger for MB inventory. When moving parts into and out of inventory you will be required to designate a source or destination inventory location. You must set up at least one inventory location.
Menu 12-3 stores the number and name of inventory locations. These may be warehouses, virtual warehouses, trucks, cages, job-site storage facilities or locations within a warehouse. If applicable, an employee can be assigned to each inventory location.
9-2 Inventory Parts
Master Builder parts are fully integrated between inventory, estimating, purchase orders, accounts payable, accounts receivable and service receivables. The parts screen has fields that are for use by each of these applications. In today’s class we will focus on the inventory fields on the part screen.
• Manufacturer and Manufacturer Part #
• Average Cost –displays current average cost of item
• Stock Item – must be checked for the Part to be used in Inventory
• Serialized Item – Inventory parts are either serialized or non-serialized. Serialized units have a unique serial number that must be tracked from purchase to installation for warranty purposes and to control the location of more expensive items. Non-serialized stock items are not tracked individually.
• Required from Inventory – mandatory that the part come from inventory. Part cannot be purchased and expensed directly.
• Default location – location where item is normally held
• Bin # - optional
• Reorder quantity – the point at which item should be re-ordered
• Minimum Order Qty – the smallest number of units to order.
• Package Quantity – after meeting the minimum, the number of units to an order or package.
• Unit Weight – Optional
• Quantity on hand – displays current quantity in ALL locations
• Inventory Button displays detailed inventory by location.
General Ledger Inventory Accounts
Menu 1-8 General Ledger Setup specifies the Inventory Account. You can change the dedicated inventory account prior to posting your first accounting transaction in MB7. After you post you can no longer change any of the controlling accounts.
12-2 Entering Beginning Inventory Balances
We will enter our beginning quantities at startup at Menu 12-2. Each item in inventory must be posted to the appropriate inventory location, using the quantity and value from the startup balances.
• Post the opening balance entries to the period prior to going live on MB.
• Beginning balances can be entered in one transaction or with multiple entries by location, part class, etc.
• Enter each part quantity on hand and the value from the existing software reports. Extended balance for all parts should equal the opening GL balance for inventory.
• The Credit Account in the grid will be the clearing account
• The Destination is the Inventory Location where the parts are held.
The Ledger Transaction debited Inventory and credited the Inventory Clearing Account.
To Drill Down to the part, select the part on the allocation grid first and then click on Go To Part. Notice the Average Cost and Quantity on Hand now have values. Select the Inventory option at the bottom of the screen to see inventory details.
The inventory screen displays quantity by location and last stocked date. Other fields for each location can now be set up.
Inventory Allocation
The Inventory Allocation Screen
Purpose of the Allocation Screen
• To enter beginning balances of inventory
• To enter and track the movement of inventory from one location to another
• To record the consumption, sale or loss of inventory
• To Hold or reserve Inventory items for jobs
• To move items to and from a job
• To re-value existing inventory
12-2 Inventory Allocation Screen
Ticket # - this number will print on the shipping ticket or packing slip.
Job – Enter a Job# if this record is to hold or ship inventory to or from a job. The job address will default and print on the Shipping Ticket.
Approved, Delivered, Invoiced are optional dates.
Deliver Via – create a quick list of delivery options. FedEx, etc.
Inventory Status
Each inventory record is assigned a Status based upon the progress of the transaction in the inventory process.
1. Open – The Inventory is available and is ready to “Ship”
2. Review – The record should be reviewed before Shipping
3. Hold Stock – Items are to be held for a job. MB7 reduces the Quantity Available but not the Quantity on Hand.
4. Shipped – Record is posted, Inventory is moved or reduced, GL transaction is created and the Quantity on Hand is changed (if appropriate).
Inventory Reports, Ordering & Receiving
MB Modules and Screens Which Affect Inventory Balances
12-2 Inventory Allocation
• Shipped allocations with an Destination Location increase Part Quantity and affect Average Cost
• Shipped allocations with a Source Location reduce Part Quantity but have NO affect on Average Cost
• “On Hold” Allocations do not change Part Quantity on Hand
6-6-1 Purchase Orders
• No affect on Part Quantity or Average Cost
• Shows “On Order” on Inventory Reports
12-4 Purchase Order Receipts
• Increases Inventory Qty
• Affects Average Cost of Part
4-2 Accounts Payable Invoices
• AP Invoices increase Part Quantity and affect Average Cost
• AP Credits reduce Part Quantity and can affect Average Cost
11-2 Service Receivables
• Work Orders have NO affect on Part Quantity
• SR Invoices Reduce Part Quantity with NO affect on Average Cost
• SR Credits Increase Part Quantity with NO affect on Average Cost
3-2 Accounts Receivable Invoice
• No Effect on Inventory, either Qty or Average Cost!
9-5 Estimating Takeoffs
• Can Drill Down to Part Inventory to check Quantity on Hand
• Can estimate using Part’s Average Cost
• Can create Service Invoices which can affect Inventory
• Can create Purchase Orders which can ultimately affect Inventory
Ordering Parts for Stock
1. Verifying Part Setup at Menu 9-2
2. Print Inventory Reports to determine what to order
3. Create a Purchase Order at Menu 6-6-1
Inventory Part Setup
The Reorder Quantity on the Part Screen at menu 9-2 is the Reorder point for the Part or the minimum to have on stock.
The Minimum Restock Level can optionally be setup for each location on the Inventory screen.
Inventory Reports for Ordering Parts
12-1-5 Material Order Report
Compares part Quantity on Hand to part Reorder Quantity and reports the minimum to order
Creating a Purchase Order for Inventory Parts
At Menu 6-6-1 Create A Purchase Order using the information from the Inventory Order Report and the vendor’s current pricing.
The Material Order Report will now reflect the Quantity on Order.
The Part Quantity on Hand does not change
Receiving Materials Into Inventory
Materials may be received into Inventory in 3 ways:
• 12-2 Inventory Allocation – No impact on AP, normally used for startup and adjustments only.
• 4-2 Accounts Payable Invoices – AP will relieve the Purchase Order and increase Inventory and Part Quantity on Hand.
• 12-4 Purchase Order Receipts – Often, Parts are received with a Shipping Ticket only. This menu option stocks the materials and creates an AP Invoice with a status of Review.
12-4 Purchase Order Receipts
When the materials come in, the user brings up the Purchase Order and verifies or enters the Quantity Only. Freight and Variances may be adjusted later.
When you save the Purchase Order Receipt, you will be prompted to print a receipt. This is strongly suggested to match up with the PO and forward for accounting.
Adjusting Purchase Order Receipts in Accounts Payable
The Purchase Order Receipt created an Accounts Payable Invoice with a status of Review.
Because the shipping ticket often only includes quantity of parts shipped without the unit price or freight charges, you may need to enter adjustments to the AP Invoice that was created.
The Ledger Account for Freight and Variances is setup at Menu 1-8 on the Payables Posting Tab.
Supervisor Must First Allow Freight and Variance Posting at Menu 4-2 Options
Inventory Reports
MB offers many reports on Inventory Balances and Activity.
12-1-1 Allocation List
These reports list inventory allocations entered at menu 12-2. This report is a great tool to report activity to and from a Job!
12-1-2 Quantity On Hand
This is where you can obtain information about a particular part quantity. The Value Report extends Average Cost and will tie to the GL Inventory Balance.
12-1-3 Inventory Ledger
This report will include a beginning quantity for a part, all activity and a running quantity balance.
12-1-4 Inventory Journal
Reports all activity by part or by location. Source of the transaction is also included, which is very helpful.
12-1-5 Order Report
This is the primary report used to verify and order inventory materials.
Purchase Order Reports 6-6-2, 6-6-3 and 6-6-4
The Purchase Order Reports are very helpful for checking on the status of Materials On Order.
Please contact me if you would like to learn more about instituting a comprehensive training process. Thank you.
Andy King
T: 805-771-8400
service@missiondevelopment.com
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