The operator selects Materials Conversion program from the menu, FINDS the top level item being converted and enters the quantity to be processed. Once the item number and quantity have been input, the Materials conversion program lists the component items and quantities included in the BOM for the top level item. At this point, the operator may adjust the component items or quantities which are listed on the screen to show only the component items and quantities which will actually be put back into inventory when the transaction is completed. Note: Any change made to the component items will affect only the current transaction and will not update the BOM for the top level item in the BOM file. Also note that any change made to the component items and quantities may also cause a gain or loss to be recognized as detailed below.
• The system recalculates the cost of the item being exploded based on the BOM for the item. The system “rolls up” the component costs for the top level item using the current average cost of each of the component items and the quantity of each item which is listed in the BOM for the top level part. The total extended cost of the components listed in the BOM is used to calculate the current cost of the top level item.
• If necessary, the system changes the cost of the top level item being processed to match the cost calculated in step 2 and it documents the change and source of the change in the Inventory Activity file. The Inventory Activity (File 91) records store the old and the new unit cost of the item being processed and the quantity of the item which is on hand in each location when the Materials Conversion processor is run). The File 91 records created in this step are used for reporting and for posting the changes to the top level item cost to the General Ledger. The Inventory Activity records are assigned a type of AC (Average Cost change) and a source of MC (Materials Conversion).
• Once the top level item cost is correctly updated using the component costs, the quantity of the top level item being exploded is deducted from the On Hand field of the top level inventory item, and the appropriate adjustment is made to the On Hand quantity of each of the component parts. The net result of this step should be to adjust the top level and the component item quantities. No cost averaging is necessary since the roll up step ensures that the top level part cost equals the sum of the component extended costs (listed in the BOM). If the component list presented by the Materials conversion program has been modified by the user, then a gain or a loss may be recognized and posted to the general ledger. This gain or loss is the difference between the cost of the top level item being exploded or deducted from inventory (as calculated in step 2) vs. the total value (cost) of the component items which are put back into inventory.