Let me quickly explain why we didn’t yet contribute documentation on this.

We have not updated the documentation since the Frappe team is working on that currently due to the Production Order to Work Order transition. Whoever works on that could include this in the documentation if the design gets accepted or we can contribute the documentation after the updated documentation is available.

Could you let us know if there is anything you need from us to get the PR merged ASAP? We are on a tight schedule. We are migrating on Friday this week and need this in.

@nabinhait we bumped into an issue with this design since it records "issuance" accounting in the new purpose "Material Consumption for Manufacture". This creates a problem in making/calculating Valuation Rate of the Finish product.

Can you suggest how to proceed so we can change code right away? Issue was pointed out in this discuss post https://discuss.erpnext.com/t/material-consumption-for-manufacture/35076.

@nabinhait , here is my suggestion. We should have the idea of recording "WIP" accounts.

So in the current design, we have these accounting entries for direct material:

"Manufacture" Stock Entry:

DEBIT: Finish Goods $ 1.00
CREDIT: Components $ 1.00

If we will be adding the idea of "Material Consumption for Manufacture", we can have these accounting entries:

"Material Consumption for Manufacture" Stock Entry:

DEBIT: WIP Direct Material $ 1.00
CREDIT: Components $ 1.00

"Manufacture" Stock Entry:

DEBIT: Finish Goods $ 1.00
CREDIT: WIP Direct Material $ 1.00

OR

"Manufacture" Stock Entry:

DEBIT: Finish Goods $ 1.00
CREDIT: WIP Direct Material $ 0.50
Components $ 0.50

So the components will be exhausted during the consumption using a WIP account. This means that we need to allow the "Manufacture" stock entry to record the "WIP" cost and use this to calculate the finish good's valuation rate. The WIP accounts should also show in the Balance sheet. We can add a column/field in the "Company" doctype as "WIP Direct Material" account to set-up the default account for this scenario. Same is true with Direct Material.

Let us know what you think.

Doesn't allow consumption more than Transferred Qty.

Currently if the WIP warehouse has enough stock, "Finishing is allowed", is there is specific reason why you would like to disallow consumption ?

We should have the idea of recording "WIP" accounts.

Can you should how the stock ledger will look like after consumption and completion?

@djpalshikar can you pls put feedback from my recent suggestion about WIP accounts?

@djpalshikar

Currently if the WIP warehouse enough stock, "Finishing is allowed", is there is specific reason why you would like to disallow consumption ?

This is the idea. If the WIP has enough stock it can consume. But if WIP only has 50 and consumption is 60 then this is not allowed.

We should have the idea of recording "WIP" accounts.

In my recent comment, you can look at the accounting entries. For the Stock Ledger, here it is:

"Material Consumption for Manufacture" Stock Entry

"Manufacture" Stock Entry

For partial consumption with "Manufacture" Stock Entry

"Material Consumption for Manufacture"

"Manufacture" Stock Entry

@creamdory

• After consumption entry, Value of WIP Stock will go down by $1. And nothing else will be affected.
  Although value of Stock at WIP is still the same. This could be an issue.

• For users having Perpetual accounting enabled, I think you have got it right. But for users where accounting is not perpetual, they will have to manually take care of "Consumption Entries" and create a ledger.

• Lastly someone from Frappe has to clarify if this will affect how Valuation Rate is calculated for items The article here https://frappe.erpnext.com/kb/stock/how-valuation-rate-is-calculated-for-an-item is silent on "Stock Entry for Manufacture"

Regarding accounting entry for "Material Consumption for Manufacture", let leave it to the users. Basically, user should be able to enter "Difference Account" manually and it can be either expense or asset account.
BY default, I will suggest to skip accounting entries for "Material Consumption for Manufacture". So, to do that we will set "Difference Account" as the WIP warehouse account. Hence, the system debit and credit the same account and resulting no accounting entries. And in "Manufacture" entry as well, we will set "Difference Account" as WIP warehouse. So, system will debit FG Warehouse account and credit WIP warehouse account.
If the user want to book expense while consumption, they can change it to "Cost of Goods Sold" account or any other.
If the user want to maintain another intermediate asset account, they can manually select that account in the consumption entry.

@nabinhait , what about the calculation of the Finish product valuation rate ?

Also, I wanted to confirm to you this:

I will suggest to skip accounting entries for "Material Consumption for Manufacture". So, to do that we will set "Difference Account" as the WIP warehouse account.

This means the stock is consumed and deducted in the system but with zero accounting entries? And how do we make all the entries during finish? Should we get component cost from all the "Material Consumption for manufacture" for a work order?

This means the stock is consumed and deducted in the system but with zero accounting entries? And how do we make all the entries during finish? Should we get component cost from all the "Material Consumption for manufacture" for a work order?

Yes, it will not going to work, it is not that simple. What about if we book normal expenses while consumptions? And while updating finished goods, raw material expenses will be reverted, if we use same difference account. And expenses will be booked only for additional costs.
Now, the main challenge is updating valuation rate for FG item. Even if take consumed material costs, we don't know against how many FG items, those raw materials are consumed.

@nabinhait , made the changes you requested. And about below:

Yes, it will not going to work, it is not that simple. What about if we book normal expenses while consumptions?

Currently, it is done like this now. "Material Consumption for Manufacture" behaves like a "Material Issue" only with tagged Work Order.

And while updating finished goods, raw material expenses will be reverted, if we use same difference account. And expenses will be booked only for additional costs. Now, the main challenge is updating valuation rate for FG item. Even if it take consumed material costs, we don't know against how many FG items, those raw materials are consumed.

Can't be done since there is an option to do consumption in the "Manufacture" stock entry too when booked "Material Consumption for manufacture" is not done fully for the fg_completed_qty. And yes it will be challenging in the valuation rate calculation that is why I have suggested a WIP account that will be reverted in the "Manufacture" stock entry.

@dottenbr @creamdory Documentation is updated for renaming Production Order to Work Order. You can start documenting this changes.

@nabinhait

Material Consumption in "Manufacturing Settings"

@creamdory Change the label "Material Consumption" to "Allow Multiple Material Consumption".

@nabinhait

@nabinhait requested changes made.

@nabinhait currently, documentation is broken. https://discuss.frappe.io/t/bug-documentation-broken/601

@nabinhait made the documentation. Please check.

@creamdory is there decision on the valuation of the finished item ?

@djpalshikar currently not automated. Nabin says to change accounts during Stock Entries. Though we will think about it and make some enhancements. Currently, this feature can be enabled or disabled for this case.