The following example illustrates how a typical explosion might cause both a change to the top level item cost and a gain or loss due to conversion of a top level item into component items.
On 1/1/95 the company has quantity 3 of item number 1000 in stock at an average cost of $140.75. (The cost of the item is the same across all inventory locations).
On 1/2/95 quantity one of item number 1000 is returned by a customer because the drive was D.O.A. (dead on arrival). The item is received back into stock in the returns location at the current cost of $140.75.
The BOM for item number 1000 consists of the following components.
BOM for item 1000 (340MB Drive Kit)
Qty Item# Description Avg Cost (from Inventory Master)
1 Item DK0555 Drive Acc. Kit (cables, literature, drive rails) 5.00
1 Item HD1000 Hard Drive - 340 MB IDE 125.00
1 Item B1501 Box .50
1 Item P1501 Packing Material .25
Total Item Cost 130.75
In this situation, the cost of the Item 1000 based on current component costs is not equal to the average cost of the item 1000 in the Inventory Master file. This can occur when manufactured items are in stock, and when a reduction or increase in the cost of the components is recognized after the top level item has been built. In this example, the cost of the drive used in this BOM has decreased by $10.00 since item1000 was last built.
On 1/3/95, the operator decides to explode the item 1000 to retrieve the components. As the operator is unpacking the drive kit, he notices that the accessories kit (Item DK0555) was not returned by the customer, and that the box and packing material (Item B1501 and P1501) are not in good condition and are therefore not reusable.
The operator selects the Materials Conversion processor from the menu, selects the item 1000 and enters a quantity of -1 (to indicate that he wishes to explode one of the items). At this point, the Materials Conversion program presents the operator with a list of the items and quantities which make up the item 1000. This list is generated from the BOM record for the Item 1000 in the BOM file.
The operator knows that the drive accessories kit (DK0555) was not returned and that the box (B1501) and packing material (P1501) are not in reusable condition, so he deletes these items from the list presented by the Materials Conversion program and presses the SAVE key to process the transaction.
At this point, the BOM record for the top level item should be static (should not be changed after it is set up). The reason for this is that if the BOM for the top level item is constantly changing, the cost of the top level item will fluctuate radically, making this cost information useless for decision making purposes. This issue is discussed in detail in the next section.