Accounting Best Practices, Fifth Edition

16–4. Review Inventory Returned to the Warehouse

Most organizations that produce any sort of tangible product will be familiar with this scenario: the warehouse staff uses a computer-generated picking list to pick a number of items from the shelf for use in an upcoming manufacturing order, delivers these items to the production facility, and then finds after the job is completed that a number of items are returned to the warehouse, even though the pick list it used was intended to completely use up all items picked. Any returns of this type indicate that the bills of material used to compile the pick lists are incorrect. When this happens, the bills of material are listing too high a quantity of materials; if these bills are also used to calculate the amount of items to be purchased, an excessive number of purchases are being made. From an accounting perspective, an inaccurate bill of material leads to inaccurate product costs, which results in an inaccurate finished goods valuation.

The solution is to create a procedure for closely examining the parts returned to the warehouse, in order to determine exactly which line items in the bills of material are inaccurate. This may require the assistance of the engineer who is responsible for each bill of material, since this person has the most knowledge of what is contained in each product. By making changes to the bills, one can improve the accuracy of purchases, eliminate the labor of the warehouse staff in logging parts back into ...