Table of contents
- What is a multi-level bill of materials and why split subassemblies into separate BOMs?
- What does a multi-level bill of materials look like in an example?
- How do you explode a bill of materials down to raw materials for a batch?
- Does labor enter the cost of a semi-finished product?
- What does reusing a subassembly in another product give you?
- What happens to cost when the sheet price rises?
- How do you set up semi-finished products in Bimp?
- What does Bimp do and what does it leave out?
- What did the multi-level bill of materials give on the cabinet?
- FAQ
- A semi-finished product is a subassembly the shop makes itself and uses as a component of the product. A multi-level bill of materials gives each subassembly its own composition and cost.
- In the example a cabinet consists of a welded body, a drawer, a lock and a handle. A batch of 10 cabinets needs €1,188.80 of raw materials and €400 of labor, €1,588.80 in total.
- In Bimp piecework pay accumulates on the production task and moves into the cost of the finished product, while the cost of a semi-finished product is made of the materials of its stage. The product total does not change.
- A 10% rise in the price of steel sheet hits both the body and the drawer: €8.61 per cabinet and €86.10 per batch. The multi-level BOM shows it in one raw material row.
A shop makes a steel cabinet, and sheet steel appears in two places: the body and the drawer. With a flat bill of materials, a price rise on the sheet has to be fixed in two rows, and the value of a body that was welded in advance is not visible at all. Accounting for semi-finished goods in your own production solves both problems. The subassembly gets its own bill of materials, stock balance and cost price, and the product’s BOM refers to it as a component.
Such a chain is a multi-level bill of materials. Below it is worked through on the example of a cabinet from a metalwork shop, calculated to the cent. The example is fictional.
What is a multi-level bill of materials and why split subassemblies into separate BOMs?
A semi-finished product is a subassembly or blank that the shop makes itself and then uses as a component. The body is welded and painted, put in the warehouse, and a day or a week later goes into assembly.
When a subassembly has its own bill of materials, the body’s composition is recorded in one place, and a change reaches every product that uses it. A body can be made ahead and kept in stock. Different people make subassemblies at different workstations. The cost of a subassembly shows on a separate line.
The downside is more documents. For a product with two subassemblies that is three bills of materials instead of one. If a subassembly is used in one product only and never sits in the warehouse, a flat bill of materials stays more convenient.
What does a multi-level bill of materials look like in an example?
The product is a cabinet with one drawer, base quantity one piece. First the lower level. Quantities include process losses.
Welded body (semi-finished, 1 pc)
| Material | Unit | Quantity | Price, € | Amount, € |
|---|---|---|---|---|
| Steel sheet 1 mm | m² | 3.2 | 21.00 | 67.20 |
| Profile tube 20×20 | m | 4 | 2.40 | 9.60 |
| Welding wire | kg | 0.3 | 5.50 | 1.65 |
| Powder paint | kg | 0.4 | 14.00 | 5.60 |
| Total materials | 84.05 |
Drawer assembly (semi-finished, 1 pc)
| Material | Unit | Quantity | Price, € | Amount, € |
|---|---|---|---|---|
| Steel sheet 1 mm | m² | 0.9 | 21.00 | 18.90 |
| Slides, set | set | 1 | 8.00 | 8.00 |
| Powder paint | kg | 0.12 | 14.00 | 1.68 |
| Total materials | 28.58 |
Now the upper level. The body and the drawer stand in the cabinet’s bill of materials as components with their own specifications.
Cabinet with drawer (product, 1 pc)
| Component | Unit | Quantity | Price, € | Amount, € |
|---|---|---|---|---|
| Welded body (semi-finished) | pc | 1 | 84.05 | 84.05 |
| Drawer assembly (semi-finished) | pc | 1 | 28.58 | 28.58 |
| Furniture lock | pc | 1 | 4.25 | 4.25 |
| Handle | pc | 1 | 2.00 | 2.00 |
| Total materials | 118.88 |
The price of a semi-finished product in the cabinet table is the total of the subassembly’s own specification. For the body that is 67.20 + 9.60 + 1.65 + 5.60 = €84.05, for the drawer 18.90 + 8.00 + 1.68 = €28.58. The cabinet’s materials add up to 84.05 + 28.58 + 4.25 + 2.00 = €118.88.
Labor is a separate line at each level. The body needs cutting with welding (€19) and painting (€6), €25 in total. The drawer costs €7 of labor. Assembling and adjusting the cabinet takes €8. Labor on a cabinet is 25 + 7 + 8 = €40, and the full cost price is 118.88 + 40 = €158.88.
How do you explode a bill of materials down to raw materials for a batch?
Purchasing works from a list of raw materials. A batch of 10 cabinets needs 10 bodies and 10 drawers, and the system (or the process engineer in a spreadsheet) explodes the specifications downward and adds up identical materials from different levels.
| Raw material | Unit | In bodies | In drawers | Total | Price, € | Amount, € |
|---|---|---|---|---|---|---|
| Steel sheet 1 mm | m² | 32 | 9 | 41 | 21.00 | 861.00 |
| Profile tube 20×20 | m | 40 | - | 40 | 2.40 | 96.00 |
| Welding wire | kg | 3 | - | 3 | 5.50 | 16.50 |
| Powder paint | kg | 4 | 1.2 | 5.2 | 14.00 | 72.80 |
| Slides | set | - | 10 | 10 | 8.00 | 80.00 |
| Furniture lock | pc | - | - | 10 | 4.25 | 42.50 |
| Handle | pc | - | - | 10 | 2.00 | 20.00 |
| Total | 1,188.80 |
Check. The materials of one cabinet, €118.88, multiplied by 10 give the same €1,188.80. Purchasing sees the sheet as one row of 41 m², although 32 of them go into bodies and 9 into drawers. Labor for the batch is 40 × 10 = €400, and the full batch cost is €1,588.80 (€158.88 per cabinet).
Does labor enter the cost of a semi-finished product?
It depends on the accounting rules, and in Bimp the rule is this. The materials of the stage where the semi-finished product is made enter its cost. Piecework pay for that stage does not enter the value of the semi-finished product. It accumulates on the production task and passes in full into the cost of the finished product when the last stage receives the “Product” status.
For the cabinet, the two approaches compare as follows.
| Assembly | Materials, € | Labor, € | Value with labor, € | Value in Bimp, € |
|---|---|---|---|---|
| Welded body | 84.05 | 25 | 109.05 | 84.05 |
| Drawer assembly | 28.58 | 7 | 35.58 | 28.58 |
| Finished cabinet | 118.88 | 40 | 158.88 | 158.88 |
The finished cabinet costs the same, €158.88. The intermediate figures differ. If the shop welded 12 bodies for a series of 10, the two extra bodies sit in the production warehouse. In Bimp they are valued at €168.10 (2 × 84.05), and with labor their value would be €218.10 (2 × 109.05). The €50 difference equals the piecework pay for two bodies. Until the product is completed, the piecework pay for the subassemblies (€32 per cabinet in the example) lies on the customer order as an unallocated remainder in the “Accumulated cost” report.
For internal accounting this is enough. If you plan to sell a body or value it at full cost, add the labor separately.
What does reusing a subassembly in another product give you?
The shop also makes a cabinet with two drawers. Its specification refers to the same body and the same drawer, with two drawers instead of one. Materials come to 84.05 + 2 × 28.58 + 4.25 + 2 × 2 = 84.05 + 57.16 + 4.25 + 4.00 = €149.46. Labor is 25 + 2 × 7 + 8 = €47. The cost price is €196.46.
The slides price rises from €8 to €9 per set. In the drawer specification that is one edit, and it spreads to both products. The one-drawer cabinet gets €1 dearer and costs €159.88, the two-drawer cabinet gets €2 dearer and costs €198.46. With flat specifications the same price would have to change twice, in the row of each cabinet, and a third product with another number of drawers would add one more row to fix.
What happens to cost when the sheet price rises?
Suppose sheet steel goes up from €21 to €23.10 per m², which is 10%. A cabinet uses 3.2 + 0.9 = 4.1 m² of sheet. The rise is 4.1 × 2.10 = €8.61 per cabinet, or 5.4% of the full cabinet cost (8.61 / 158.88). On the batch that is €86.10.
In the multi-level bill of materials there is one edit, the new sheet price in the product card. The body gets dearer by 3.2 × 2.10 = €6.72 and costs €90.77, the drawer by 0.9 × 2.10 = €1.89 and costs €30.47. Together 6.72 + 1.89 = €8.61, as in the calculation by product. The cabinet costs €167.49 (158.88 + 8.61) and the batch €1,674.90.
In a flat specification the same sheet is written in two rows, and a process engineer who fixes only one row ends up with a cost error of €6.72 or €1.89.
How do you set up semi-finished products in Bimp?
Bimp works with semi-finished products in two ways.
The first is a nested specification. On the “Materials and components” tab you add the semi-finished product as an ordinary component, and in the “Specification” column choose the specification by which it is made. To do that, create the subassembly specifications first, then the product specification. In the production order, the “Create production orders” switch is meant for cascade production and automatically creates subordinate orders for semi-finished products.
The second is the stages of the production task. In the specification you turn on “Use stages and operations” and “Use semi-finished products”, and specify a semi-finished product for the stage. In the example these are the stages “Body welding” (semi-finished “Welded body”), “Drawer making” (semi-finished “Drawer assembly”) and “Assembly”. After Create batches for 10 cabinets, 10 production tasks are formed, one per product with its own serial number. Responsible people are assigned to the stages, and when a stage gets the status “Semi-finished”, the system creates an “Assembly” of the semi-finished product, writes off the stage materials and posts the subassembly. The start of the next stage cannot be earlier than the finish of the previous one.
Material tied to a stage with a semi-finished product enters the cost of that semi-finished product. The “Product” status on the last stage creates the “Assembly” of the finished cabinet and accrues the piecework pay for the whole chain. Field descriptions are in Specifications.
What does Bimp do and what does it leave out?
Bimp is a Ukrainian cloud ERP for manufacturers, and a semi-finished product in it is a component of a specification with its own specification and its own subassembly. The system posts the subassembly to the production warehouse, writes off the stage materials against it and tracks work in progress by stage. The movement of a subassembly is visible in the “Stock movement” report, and accumulated cost in the corresponding report.
There is no system that decides for you which subassemblies are worth separate specifications. The composition of subassemblies, the norms and the order of stages are set by the process engineer. Piecework pay, as described above, goes into the value of the finished product, so valuing a body together with labor needs a separate calculation. Bimp does not create a separate warehouse for semi-finished products, and the subassembly stays in the production warehouse of the production order. To see where the cost goes next, read the manufacturing cost guide.
What did the multi-level bill of materials give on the cabinet?
Two subassembly specifications added two documents. In return, the €8.61 rise in sheet cost per cabinet needed one edit, and the two extra bodies in the warehouse received their own value of €168.10.
FAQ
What is a semi-finished product in your own production?
A subassembly or blank that the shop makes itself and then uses to make a finished product. In the product's specification the semi-finished product stands as a component, and its composition is described in a separate specification.
What is a multi-level bill of materials?
A bill of materials in which a component of the product has a bill of materials of its own. The product refers to subassemblies, subassemblies refer to raw materials, and the system explodes this chain down to the materials for the whole batch.
How do you mark a component as a semi-finished product in Bimp?
On the "Materials and components" tab, in the "Specification" column, choose the specification by which the semi-finished product is made. For staged production, turn on "Use semi-finished products" in the specification.
Does piecework pay enter the cost of a semi-finished product in Bimp?
Not in the production task. The materials of the stage with the semi-finished product enter its cost, while piecework pay accumulates on the task and passes fully into the cost of the finished product.
Where is a semi-finished product stored in the warehouse?
In Bimp it sits in the production warehouse of the production order. The system does not create a separate warehouse for semi-finished products. Movements are visible in the "Stock movement" report and in the "Assembly" journal.
Prepare a product that has a subassembly made in-house, with the materials of both levels. In a Bimp demo a specialist will enter the specifications and show how the cost of the subassembly moves into the cost price of the product.
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