Glossary
What is consumption?
What material consumption means in a factory or workshop, the formula accountants use, and how it is recorded when production happens.
Updated
In short
Consumption is the quantity and value of material used up in production. SimpleERP records consumption when a work order completes, at average cost, from the quantities you confirm.
Consumption is the raw material and components used up in making products during a period. Accountants work it out as opening stock plus purchases less closing stock, and it appears in the profit and loss account as cost of materials consumed. A system that records consumption on each production run gives the same figure item by item, and the difference from the formula shows losses.
Consumption: a worked example
Powder coat paint at Lakshmi Steel in September, worked out two ways.
| Line | Quantity | Value at ₹450 a kg |
|---|---|---|
| Opening stock, 1 September | 30 kg | ₹13,500 |
| Purchases in September | +50 kg | ₹22,500 |
| Closing stock, 30 September | −59.50 kg | ₹26,775 |
| Consumption by formula | 20.50 kg | ₹9,225 |
| Consumption on the rack work order | 20.50 kg | ₹9,225 |
FAQ
Questions, answered
What is the formula for material consumption?
Consumption = opening stock + purchases − closing stock, for one material or for all materials in value. It tells you what was used, but not where. Recording consumption on each work order shows which product used it.
Is consumption an expense?
It becomes one. Material consumed moves into the value of the finished goods. When those goods are sold, that value reaches the profit and loss account as cost of goods sold. Material still in unsold goods stays in inventory.
Why is actual consumption higher than the BOM?
Damage, cutting waste, rework or a BOM that underestimates scrap. If actual consumption runs high every time, raise the scrap percentage on that component so planning and costs match what the shop floor really uses.
Can I record consumption without a work order in SimpleERP?
Consumption from production goes through a work order. Material used in other ways, such as samples or repairs, can leave stock through a stock adjustment with a reason, which charges its value to stock adjustment in the books.
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 moreRaw material
What a manufacturer buys to turn into products: steel, paint, fasteners, packing. Held as inventory until consumed.
Read moreManufacturing
Bills of materials with scrap and cost roll-up, and work orders from plan to complete.
Read more
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