Glossary
What is a bill of materials?
What a bill of materials holds, how it sets the material a work order uses, and how it gives each finished unit its cost.
Updated
In short
A bill of materials is the recipe for a manufactured product: its components, their quantities and the expected scrap. In SimpleERP a versioned BOM plans each work order's materials and previews the cost per unit.
A bill of materials, or BOM, is the recipe for a manufactured product: the components and quantities needed to make a set output, the scrap you expect on each component, and any extra cost per batch such as labour or power. It decides how much raw material a work order consumes and what each finished unit costs, so a wrong BOM means wrong stock and wrong margins.
Bill of materials (BOM): a worked example
Lakshmi Steel Furnitures makes its Steel rack 4 shelf in the Main godown. The BOM is written for a batch of 10 racks, costed at what each component currently costs on average.
| Component | Qty per 10 racks | Scrap % | Planned qty | Average cost | Cost |
|---|---|---|---|---|---|
| Slotted angle 6 ft | 40 Nos | 0% | 40 Nos | ₹310 | ₹12,400 |
| Shelf panel 36 × 18 in | 40 Nos | 2.5% | 41 Nos | ₹290 | ₹11,890 |
| Nut and bolt set | 320 Nos | 0% | 320 Nos | ₹2 | ₹640 |
| Powder coat paint | 4 kg | 5% | 4.20 kg | ₹450 | ₹1,890 |
| Material cost | ₹26,820 | ||||
| Labour and power per batch | ₹4,380 | ||||
| Standard cost per rack | ₹31,200 ÷ 10 = ₹3,120 |
What goes into a good BOM?
Every component the product really uses, in the unit you buy it in, with a quantity for a round batch size. Add a scrap percentage where material is lost in cutting or painting, and put labour and power in the extra cost per batch so the cost per unit is complete.
FAQ
Questions, answered
What is the difference between a BOM and a work order?
The BOM is the standing recipe: what one batch needs. The work order is one production run: make 50 racks this week from that recipe. The work order copies the BOM, scales it to the quantity, then records what was really consumed and produced.
Why keep versions of a BOM?
Products change. If you switch to a thicker shelf panel, save a new version and make it the default. Work orders already planned keep the old recipe, and the history still shows which version each run used, so past costs stay explainable.
Should labour be in the bill of materials?
If you want a true cost per unit, yes. Put wages and power for one batch in the extra cost per batch. In SimpleERP that amount is added to the finished goods' value on completion and posted against a manufacturing overhead account.
Can a component have its own BOM?
Yes. If you make shelf panels yourself, give the panel its own BOM and make it with its own work order first. The rack's work order then consumes panels from stock at their average cost, which already includes their making cost.
Related
Keep reading
Work order
An instruction to make a quantity of a product from its BOM, which consumes components and adds finished goods on completion.
Read moreCost roll-up
Adding up a BOM's component costs, scrap and labour to get the standard cost of one unit of a manufactured product.
Read moreManufacturing
Bills of materials with scrap and cost roll-up, and work orders from plan to complete.
Read more
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