Manufacturing Journal and Bill of Materials
Assemble finished goods from raw components using BOM in Tally — Sunrise Retail's Combo Pack production walkthrough
Prerequisites: Module 22 — Cost Centres
Learning Objectives
By the end of this module, you will be able to:
- Explain what a Manufacturing Journal is and when to use it
- Create a Bill of Materials (BOM) in Tally for a finished product
- Record the manufacturing/assembly process using a Stock Journal
- Understand how raw material stock reduces and finished goods stock increases
What Is a Manufacturing Journal?
A Manufacturing Journal is a special type of Stock Journal used when a business converts raw materials or components into a finished product.
Examples:
- A factory assembles mobile phones from chips, screens, and batteries
- A furniture maker builds chairs from wood, screws, and fabric
- A food manufacturer combines ingredients into a packaged product
- A retailer assembles "gift bundles" or "combo packs" from individual items
The manufacturing journal records:
- Raw materials consumed (stock reduces)
- Finished goods produced (stock increases)
- Additional costs (labour, overhead if applicable)
For businesses using Accounts with Inventory, this is handled through Tally's Manufacturing Journal voucher type with a configured Bill of Materials.
Bill of Materials (BOM)
A Bill of Materials is the recipe for a finished product — a list of all components required to produce one unit of the finished good.
Example BOM:
In Tally, the BOM is attached to the finished goods stock item. When you run a manufacturing journal for 10 computers, Tally automatically consumes 10 processors, 20 RAM modules, 10 SSDs, and 10 cabinets.
BOM Tree — Sunrise Combo Pack
For 50 combo packs:
Sunrise Retail — Case Study Application
Sunrise Retail decides to offer a bundled "Sunrise Combo Pack" — popular for gifting and corporate purchases. The pack combines a phone, screen guard, and cover into an attractively packaged unit sold at a premium.
Combo Pack BOM
Finished Good: Sunrise Combo Pack (1 unit)
| Component | Qty per Pack | Unit Cost | Cost per Pack |
|---|---|---|---|
| Samsung Mobile Phone | 1 Nos | ₹12,000 | ₹12,000 |
| Screen Guard | 1 Nos | ₹200 | ₹200 |
| Mobile Cover | 1 Nos | ₹150 | ₹150 |
| Total Component Cost | ₹12,350 |
Selling price: ₹12,350 + 15% margin = ₹14,200 per pack
Step 1: Create Component Stock Items (if not already existing)
| Stock Item | Under | Unit | Rate |
|---|---|---|---|
| Screen Guard | Consumer Electronics | Nos | ₹200 |
| Mobile Cover | Consumer Electronics | Nos | ₹150 |
(Samsung Mobile Phone already exists)
Step 2: Create Finished Goods Stock Item with BOM
Configure Bill of Materials: In the stock item creation, enable BOM:
| Component | Qty Required |
|---|---|
| Samsung Mobile Phone | 1 Nos |
| Screen Guard | 1 Nos |
| Mobile Cover | 1 Nos |
Save the stock item. The BOM is now linked to "Sunrise Combo Pack."
Step 3: Record Manufacturing — 50 Combo Packs
Sunrise Retail decides to assemble 50 Combo Packs from existing warehouse stock.
Manufacturing Journal:
Finished Goods (Production — Destination):
| Item | Qty | Rate (Component Cost) | Amount |
|---|---|---|---|
| Sunrise Combo Pack | 50 Nos | ₹12,350 | ₹6,17,500 |
Raw Materials Consumed (Source):
Tally auto-fills from the BOM (50 units × each component):
| Component | Qty Used | Rate | Amount |
|---|---|---|---|
| Samsung Mobile Phone | 50 Nos | ₹12,000 | ₹6,00,000 |
| Screen Guard | 50 Nos | ₹200 | ₹10,000 |
| Mobile Cover | 50 Nos | ₹150 | ₹7,500 |
| Total | ₹6,17,500 |
The Resulting Stock Journal Entry:
In accounting terms (the inventory journal Tally creates):
| Account | Dr (₹) | Cr (₹) |
|---|---|---|
| Sunrise Combo Pack (50 Nos @ ₹12,350) | 6,17,500 | |
| To Samsung Mobile Phones (50 Nos @ ₹12,000) | 6,00,000 | |
| To Screen Guard (50 Nos @ ₹200) | 10,000 | |
| To Mobile Cover (50 Nos @ ₹150) | 7,500 |
Total debit = Total credit = ₹6,17,500 ✓
Note: This is a Stock Journal — no accounting (P&L/Balance Sheet) impact. The total inventory value remains the same (₹6,17,500 worth of components → ₹6,17,500 worth of combo packs).
Step 4: Stock Position After Assembly
Before assembly:
| Item | Qty | Value |
|---|---|---|
| Samsung Mobile Phone | 97 Nos | ₹11,64,000 |
| Screen Guard | 50 Nos | ₹10,000 |
| Mobile Cover | 50 Nos | ₹7,500 |
After assembling 50 combo packs:
| Item | Qty | Value |
|---|---|---|
| Samsung Mobile Phone | 47 Nos (97−50) | ₹5,64,000 |
| Screen Guard | 0 Nos (50−50) | ₹0 |
| Mobile Cover | 0 Nos (50−50) | ₹0 |
| Sunrise Combo Pack | 50 Nos | ₹6,17,500 |
Total inventory value remains: ₹5,64,000 + ₹6,17,500 = ₹11,81,500
(Compare with before: ₹11,64,000 + ₹10,000 + ₹7,500 = ₹11,81,500 — same total ✓)
Selling the Combo Packs
Now Sunrise Retail sells 20 Combo Packs to a corporate customer at ₹14,200 each (IGST 18%):
Sale: 20 × ₹14,200 = ₹2,84,000 | IGST 18%: ₹51,120 | Total: ₹3,35,120
Sales Voucher (F8):
| Account | Dr (₹) | Cr (₹) |
|---|---|---|
| Customer A/c | 3,35,120 | |
| To Sales — Electronics | 2,84,000 | |
| To IGST Output | 51,120 |
Gross Profit on Combo Packs:
- Sale price per pack: ₹14,200
- Cost price per pack: ₹12,350
- Gross Profit per pack: ₹1,850 (13% margin)
Compare with selling phones individually:
- Phone sale price: ₹16,000
- Phone cost: ₹12,000
- Individual gross profit: ₹4,000 (25% margin)
Combo packs have lower margin but may drive higher volume with corporate buyers.
Practice Exercise
Exercise 1: Sunrise Retail wants to create a "Student Pack" BOM:
- 1 Dell Laptop (cost ₹35,000)
- 1 Laptop Bag (cost ₹800)
- 1 Mouse (cost ₹350) = Student Pack (1 unit)
Selling price: ₹40,000 per pack.
They assemble 10 Student Packs. Write the Manufacturing Journal entry.
Show answer
BOM for Student Pack (1 unit):
- Dell Laptop: 1 × ₹35,000 = ₹35,000
- Laptop Bag: 1 × ₹800 = ₹800
- Mouse: 1 × ₹350 = ₹350
- Component cost per pack: ₹36,150
Manufacturing Journal — 10 Student Packs:
Finished Goods (Production):
| Item | Qty | Rate | Amount |
|---|---|---|---|
| Student Pack | 10 Nos | ₹36,150 | ₹3,61,500 |
Components Consumed:
| Item | Qty | Rate | Amount |
|---|---|---|---|
| Dell Laptop | 10 Nos | ₹35,000 | ₹3,50,000 |
| Laptop Bag | 10 Nos | ₹800 | ₹8,000 |
| Mouse | 10 Nos | ₹350 | ₹3,500 |
| Total | ₹3,61,500 |
Gross profit per Student Pack when sold at ₹40,000: ₹40,000 − ₹36,150 = ₹3,850 (10.7% margin)
Compare: selling laptop alone at ₹42,000 − ₹35,000 = ₹7,000 (16.7% margin). The pack has lower margin but bundling may attract bulk orders.
Exercise 2: If Sunrise Retail adds ₹500 in assembly labour cost (paid to staff) per pack for the Combo Pack, how would this affect the Manufacturing Journal entry and the finished goods cost?
Show answer
Labour cost can be added to the Manufacturing Journal in two ways:
Option 1 — Add to finished goods cost in the journal:
- Include "Assembly Labour" as a component in the BOM at ₹500/pack
- For 50 packs: ₹25,000 assembly labour cost
- Finished goods cost: ₹12,350 + ₹500 = ₹12,850 per pack
Journal:
| Component | Qty | Rate | Amount |
|---|---|---|---|
| Samsung Mobile Phone | 50 | ₹12,000 | ₹6,00,000 |
| Screen Guard | 50 | ₹200 | ₹10,000 |
| Mobile Cover | 50 | ₹150 | ₹7,500 |
| Assembly Labour | 50 | ₹500 | ₹25,000 |
| Total | ₹6,42,500 |
Finished Goods: 50 Sunrise Combo Packs @ ₹12,850 = ₹6,42,500
Option 2 — Record labour as a direct expense separately: Record salary/wages expense separately. Finished goods cost stays at ₹12,350. Labour is an expense in the P&L.
Which to use? Option 1 is more accurate for margin analysis — it builds labour into the product cost. Option 2 is simpler and more common for small operations.
Key Terms
| Term | Meaning |
|---|---|
| Manufacturing Journal | Stock Journal variant for converting components into finished goods |
| Bill of Materials (BOM) | Recipe listing all components needed to produce one unit of finished good |
| Finished Goods | The completed, sellable product after assembly |
| Raw Materials | Component items consumed in the manufacturing process |
| Work-in-Progress (WIP) | Partially assembled goods not yet complete — tracked separately if needed |
| Component Cost | Total cost of all raw materials going into one unit of finished good |
| Overhead | Manufacturing costs other than direct materials (labour, power, depreciation) |
Module Summary
- Manufacturing Journal converts raw material stock into finished goods — no P&L impact, only inventory movement
- Bill of Materials defines the recipe: components, quantities, and rates per finished unit
- For 50 Sunrise Combo Packs: ₹6,00,000 phones + ₹10,000 screen guards + ₹7,500 covers = ₹6,17,500 combo packs
- Total inventory value before and after assembly remains the same (₹11,81,500)
- Labour/overhead can be included in BOM (adds to finished goods cost) or expensed separately
- Gross margin on combo packs (₹1,850/pack) is lower than selling phones individually (₹4,000/phone)
Quick Quiz
- A Manufacturing Journal in Tally affects:
- a) Both P&L and Balance Sheet
- b) Only the P&L (through Cost of Goods Sold)
- c) Only inventory (stock quantity and value) — not the accounting books
- d) Only the Balance Sheet (liability increases)
Show answer
Answer: c — A Manufacturing Journal is a Stock Journal. It moves value from raw material stock items to finished goods stock items. The total inventory value on the Balance Sheet is unchanged, and no P&L accounts are touched.
- After assembling 50 Combo Packs (50 phones used), Samsung Mobile Phone stock reduces from 97 Nos to:
- a) 97 Nos — assembly doesn't affect stock
- b) 47 Nos
- c) 50 Nos
- d) 147 Nos
Show answer
Answer: b — 97 opening phones minus 50 consumed for Combo Pack assembly = 47 phones remaining. The consumed phones are transferred to the finished goods item, not destroyed.
- The Bill of Materials is configured in:
- a) The Manufacturing Journal voucher itself
- b) The Stock Item master (Set/Alter BOM)
- c) The Stock Group master
- d) F11 Features
Show answer
Answer: b — The BOM is attached to the finished goods stock item master. Navigate to Masters → Inventory → Stock Items → Alter the finished good → Set/Alter BOM: Yes. Once configured, every Manufacturing Journal for that item auto-populates the components.
- Selling 20 Combo Packs at ₹14,200 each (cost ₹12,350 each) gives gross profit per pack of:
- a) ₹2,000
- b) ₹1,850
- c) ₹1,650
- d) ₹12,350
Show answer
Answer: b — ₹14,200 selling price − ₹12,350 component cost = ₹1,850 gross profit per pack. This is a 13% margin compared to 25% on individual phone sales.
Next up: Module 24 — Opening Balances — Entering all opening balances in Tally correctly so that the April 1 Balance Sheet is perfectly balanced with zero difference.