Expenses included in valuation and manufacturing stock entry

I need some help with how to deal with additional costs when processing a work order and making the Manufacturing stock entry. The products we sell are all manufactured in house from machined aluminum and need to be anodized by a vendor. The anodizing is listed in the BOM so it will show up under “Additional Costs” on the Manufacture stock entry. By the time the work order has been completed we usually have already created the purchase invoice for anodizing and paid for it. The amount of the anodizing which in this example is 95.7 euro is already accounted for in the “parts and materials inventory account”. What confuses me is the ledger entry for the additional costs and how to deal with it.

Do I need to make a journal entry to reverse the 95.7 euro from Expenses included in valuation and Parts and material inventory? Is the “expenses included in valuation” account supposed to be a contra account or valuation account? Also if it is intended to be a contra account shouldn’t it be an asset account?

I really need to get a better grasp on how to use “Additional Cost” properly and ensure I understand all the ledger entries associated with it. I would be willing to pay someone to help coach me with this a little bit if necessary although I would rather keep it in the forum if possible.

Hello friend

Did you find any compelling answer?

Over here, what you are trying to do by using Additional Expenses is to appropriate expenses incurred elsewhere (like Anodising expenses that was paid for when the supplier send you her/his invoice) onto a stock item. So, the entries seem to be fine and with this entry, it helps you arrive at the correct valuation of the item. To ensure that it all wraps up nicely, you need to use the same Expense account to which the anodising expenses were charged to.

Have you set the Default Inventory Account in the Company Master (Accounts>Company) as Expenses Included in Valuation. Ideally since you are loading up an expense into the valuation of a Stock Asset, that account should be a Current Asset, Stock Asset account. So, you may want to check if your Company Accounts are configured appropriately in the Company Master.

Hope this helps. It may be two years too late for @owen, but hopefully it helps @JeansReal.



1 Like

Hi JayRam, sorry opening an old topic… There are generic costs such as space, electricity and consumables in the workstation/workorder flow it also posts to the Expenses included in valuation / any other Expenses account you set. Since the costs are so many meaning there is no way to nitty gritty each expenses to balance it out. How do we go about this? Any advise?

Hi Mario,

Are you saying that you want to load up the space occupied by a workstation onto the costs of the items that the workstation transforms/makes?

And other expenses such as Electricity, Consumables, etc.?

It’s very complicated to do that and you may not get a better result of loading up those costs even if you do. But if you really want to do it, this is how I would do it:

Take all the costs that you want loaded like Rent, Electricity and Consumables and charge it to Expenses included in Valuation when you incur expenses in those areas. Since, Rent is for the entire factory and not just for the workstation, now you need to figure out how much of that cost you are going to appropriate to the workstation. Is it a percentage of the floor area? Are there other complexities? Now you may not have just one workstation, but many workstations, so you need to figure out the appropriation percentages for each of the workstations. Then there are other facilities: like the lobby, restrooms, common areas, office spaces, stores, etc. etc. So you really need to crunch all of this on a spreadsheet and then come up with a number for each workstation. Even when you do that, are you going to appropriate those costs for the period for the workstation? Are are you going to appropriate it based on the the time that the workstation is utilized. Like let’s say you run one shift and let’s say you assume 20 working days in a month (there you already have to deal with a complexity of some months having more than 20 working days and other months having less) and your total rent costs for the factory is $5,000.00 and you have crunched from your spreadsheet that a particular workstation needs to be appropriated 4% of the monthly rental cost. So that is $200.00. Now you have to assume the utilization of this workstation. Assuming 20 working days to a month, and 8 hours per shift and 1 shift per day, you have 160 hours of operation of this workstation. But will this workstation actually only run 160 hours? Or will it run less? Or more (Because of overtime, maybe)? Let’s say you assume 120 hours as the utilization of this workstation. So the cost per running hour is $200/120 + $ 1.75 per hour of operation. Now it’s perhaps possible to take all of these costs and load it up on an item that got transformed on the workstation and the time to make/transform that item was 2.25 Hours. It’s possible to load up that cost, but I just think it’s way too complicated to try to do that (and I am not just saying that ERPNext does not have an easy way to manage all of this - it does not. But even if you were to use an ERP that makes managing all of this a breeze, the underlying logic of appropriation of costs is so subjective and so variable that it’s very difficult to gain any business advantage out of this.

What I think is more optimal is for organizations to get this information from ERPNext. Like the Manufacturing Stock Entry can capture information about time of operation crunch all of that on a Spreadsheet and arrive at the mark up of each item you sell. The one place you need this is in your costing process as you make quotations to customers/prospects.

I am, not for a moment saying that organizations should not be on top of workstation costs. But using spreadsheets for a few months/quarters to monitor the logic of appropriation of costs and checking if it is making sense and tweaking and fine tuning it would be more optimal. Once you determine that it’s making sense, enough to start incentivising people based on these numbers is when you can think of actually making it part of ERPNext.

Hope this helps. I think it’s very complicated and maybe I haven’t put the complexities across crisply.

If you do decide to run this whole process on ERPNext, please do share your experiences.

Hope this helps.



Hi JayRam,
im not sure if you use the manufacturing module… but yes… they go by /hour bases for each work station … so actually they nicely derive it for us as “Expenses adding valuation”
My accounting and I decided for now as the name suggests as 5.x.x expense account…
This account is abit funny as it will always be on the credit side. I guess it just acts as a holder to prepaid expenses parked in COGS.
Ill update on my experience as we start to journal.
Thank You.

Hi Mario,

The easiest part is the loading up of the costs that you want loaded up in each workstation/operation.

Yes, the account will always be on the credit side, because you are moving an expense to the valuation of the item. But considering that you’d have charged the rent (to another account perhaps) and that would have hit your debit side, it’s okay.

But organizations that go through it discover that how much to load per hour is complex. More complex is trying to figure out if an organization is overloading or under loading those costs. Typically such a configuration has too many moving parts, too many variables and therefore, in my opinion is a very complicated way of trying to answer this question: What should my markup be on various overheads for the products I make and sell.

But then of course, unless one start measuring these things, it cannot be controlled, so it’s good to do that. I just think that it takes quarters, if not years, to evolve a framework of loading those costs and using the data to incentivise people.



1 Like

Hi Jayram,
indeed very wise words from a seasoned expert indeed… hehehe…
Yes we are a small manufacturing company so assumptions made here is ok.
We might not even include “fluctuating” costs like electricity per workstation just too nitty gritty.
These costs will come through anyway in reguler monthly expenses.

Thank You!