Can we continue using non-inventory parts for costing and expensing?
Non-inventory parts should never be used in a WIP accounting system for any purpose. All physical items must be set up as stock items.
Non-inventory parts are commonly used in non-WIP systems for direct costing and expensing and as a means for bypassing inventory costing. Using a non-inventory part (referred to as a “descriptor” in DBA) to represent a stock item compromises the manufacturing workflow.
The fundamental basis for WIP accounting is to absorb all production costs, including material, into the inventory cost of manufactured items. It is the inventory cost that provides an accurate cost of goods sold that reflects an approximation of each item’s actual manufactured cost. Any substitution of descriptors for stock items anywhere in the manufacturing workflow compromises the integrity of absorption costing.
Absolutely under no circumstances should a stock item ever be represented by a descriptor.
