Beyond the Normal ‘Unit of Measure’ Motif – Part 1

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One of the most complicated and confusing aspects of setting up complex inventory centers around unit of measure and unit-of-measure conversions.

For example, say I buy one spool of wire containing 2,500 feet, but I use the wire in 25-foot segments within an assembly. Or, perhaps I buy 10, 50-gallon drums of a product at one time, but I use or sell that product by the ounce. While these may sound like a nightmare, they're nothing when it comes to changing the entire unit-of-measure type from one quantity to another, like buying in pounds, but selling in gallons.

In this miniseries, we'll take a comparative look at units of measure in terms of situations that may warrant something out of the ordinary. We'll see if and how QuickBooks Enterprise can handle those situations, or if it takes a more sophisticated inventory product to accomplish tasks that just don’t work, or work right in QuickBooks Desktop products.

Miniseries Part 1: How QuickBooks Does It

Even though QuickBooks Enterprise offers single and multiple units-of-measure capabilities, it can get confusing in extremely complex unit of measure motifs. It may force you to work in an approach that seems entirely contrary to your desired objective, especially when you try to take one type of unit of measure and convert it into a different type of unit of measure for which it has not been preconfigured. 

Let’s take a closer look. Below, you'll see the first step in setting up a new unit of measure set using the multiple Unit of Measure feature in QuickBooks Enterprise. 

This first step illustrates the problem I'm talking about. Notice in this step that you must select a “Unit of Measure Type” – the key word is type. Types include counts, weights, volumes, etc.

Now, if I'm trying to convert measures from say "weights into volumes" or "volumes into weights," QuickBooks may get confused if I take the wrong approach, even though that seems normal. And, if your force it to accept your "frame of mind,’ confusion may not be the right name for what happens.

So, let’s say I select volume as my Unit of Measure type. The next step in the setup is select my Base Unit of Measure. In this case, I'm going to select "Gallon," because I'm dealing with gallons of water in my formula.

The third step in the setup is to add the "related units." There is a long list already established by QuickBooks. It includes things like a "bucket," because after all a 5-gallon bucket is pretty common.

But there's one problem here as far as my scenario is concerned. When I scroll through the list, there's no option for "pound." And if I scroll to the bottom of the list, there's no option to add another related unit. Furthermore, if I try to click on the "Edit" menu to perhaps find an option to "Add New," it doesn’t exist either.

It’s as if QuickBooks has decided there are no other alternative related units should ever be associated with a gallon. 

Bu, what about doing it in the reverse fashion, going from pounds to gallons?

Well, if at first you don't succeed, try, try again. So, I'll just start over and select a Unit of Measure Type of weight this time.

And then select a pound as my base unit of measure.

I now have the option to add a Base Unit called Gallon and tell QuickBooks there are 8.34 number of LB (Pound) in the Gallon Related Unit.

I also need to define my purchase and sales unit of measure units.

Last, but not least, I must give this new Unit of Measure set a name, so in this case, I'm calling it "Pounds Per Gallon."

But here's an oddity. When I go to use this for a new Inventory Item, let’s call it Component 1, I select my U/M set of Pounds Per Gallon and note both my Cost and Sales Price.

My cost is $1.00 per lb. That agrees with what I told QuickBooks when I purchased the product (I buy it in pounds). But the sales price also is set up as per pound, even though I told QuickBooks I sell this product in gallons, not pounds.

It would seem to me that the sale price should reflect my sale UOM, because I would readily know how much I intend to charge for the UOM quantity I intend to sell.

In other words, I would input how much I want to sell each gallon for. But that's not the way QuickBooks does it. It's trying to preserve the markup and margin relationships between buying UOM and sales UOM at this point in the process.

I guess it's time to buy some Component 1 from our supplier. I'm buying 850 pounds of it.

QuickBooks seems to have done a pretty good job buying it at the right UOM (by default).  Now, if I look at my item list, it shows me I have 850 pounds in stock available to sale. Of course, I don’t sell it in pounds; I sell it in gallons. 

QuickBooks doesn’t bother to tell me how much I have available to sell in my sale UOM. But sell I must, so let’s look at how a Sales Invoice will populate. 

When I populate a sales invoice with my Component 1 item, the default sale UOM is displayed correctly as Gal (short for Gallon). But what about my price for a single gallon? Well that's 16.68, which is two times the 8.34. That seems right.

If I click in the Quantity field, I get the little view icon (as you can see below) which allows me to open the current availability field.

I can see I have almost 102 gallons (101.91847) available for sale. So, that's the right conversion of the quantity I purchased. It just seems awkward I had to take this approach to get to where I needed to go to sell it.

But does it work okay when using the item in an assembly?

When I go to setup a new assembly item in QuickBooks and select my Component 1 item, it defaults to the purchase, not the sale Unit of Measure. In most sophisticated manufacturing systems, the manufacturing UOM default would have been configured as part of the UOM configuration. But in QuickBooks, we only got options for purchase, sale and ship, not assembly.

This means I must be certain to change the U/M in my Bill of Materials to reflect the sales quantity if that's the measure upon which I'm building my finished product. I guess if I have gotten this far along, so I might as well have one more thing to do.

Beyond this, the math does check out. And that's a good thing, because after all, this is an accounting program that happens to do inventory and units of measure.

In Part 2, we'll examine how Fishbowl would handle this exact same volume to weight setup and processing.