Product Costing in QuickBooks Enterprise for a Small Manufacturer: Assemblies, Labor, Scrap and Landed Cost

Written & reviewed by Ram Singh, founder, Numerawise Solutions · Last reviewed October 7, 2026

QuickBooks Enterprise covers the mechanics of product costing. You set up inventory assemblies with a bill of materials. Builds use up the components and add finished goods. Inventory is valued at average cost, or FIFO with Advanced Inventory. On Platinum and Diamond, landed cost spreads freight and duty across a bill’s items. What it does not do is work out your labor and overhead rates, plan for scrap, or explain the gap between expected and actual cost. Those stay in a spreadsheet you update monthly. Sources: Intuit help articles “Track the products you manufacture” and “Calculate landed costs in QuickBooks Desktop Enterprise” (both updated 4 August 2026), “Combine inventory items to build finished goods” and “FIFO Options in QuickBooks Desktop Enterprise” (both updated 5 August 2026), and “Set up your product’s bill of materials,” all read 7 October 2026.

What QuickBooks Enterprise records when you build

Intuit builds manufacturing in Desktop around one item type: the inventory assembly. Its bill of materials lists every component needed to make one unit. Each component can be an inventory part (quantity tracked), a non-inventory part (used but not counted), or an other charge item (a fee or charge added to each build). The assembly record also has a cost field. Intuit says this can be the total of the parts “or it can include other expenses.” You also set a build point, the minimum quantity on hand that triggers a reminder to build more.

When you record a build, QuickBooks reduces the components on hand and adds finished units. You can also track pending builds and check shortages. Enterprise can also block negative inventory (“Don’t allow negative inventory quantities”). Turn that setting on. Selling finished units before their build is recorded is a common reason a manufacturer’s cost of goods sold goes wrong; Intuit’s own negative-inventory article says to enter the build before the sale.

Materials: average cost or FIFO

By default, QuickBooks Desktop values inventory at average cost. With Advanced Inventory, which comes with Enterprise Platinum and Diamond, you can switch to FIFO from a date you choose. Intuit warns that the switch changes the Inventory Valuation reports, the Balance Sheet, and cost of goods sold on the Profit and Loss. QuickBooks recalculates every inventory transaction from that date forward. If you turn FIFO off later, it goes back to average cost.

Pick the method with your CPA before year-end, not halfway through the audit. The start date matters too: changing it rewrites reports someone has already relied on.

Labor and overhead: QuickBooks applies the rate; Excel works it out

QuickBooks has no labor-routing or work-center module. The usual setup adds labor and overhead to the bill of materials as other charge items at a fixed rate per unit, for example “Assembly labor, 0.4 hours” and “Shop overhead, per unit.” The rate comes from a spreadsheet, not from QuickBooks:

1. Labor rate: production payroll and payroll taxes for the period, divided by direct hours worked. Use your own payroll register, not the pay rate on the employee record.
2. Overhead rate: shop rent, utilities, equipment depreciation and supervision, divided by the same hours or by units produced. Choose one driver and stick with it.
3. Monthly true-up: compare the labor and overhead the builds applied with what payroll and the bills actually cost. Book the difference to cost of goods sold, or ask your CPA how to split it between inventory and cost of goods sold.

Here is a hypothetical example to show the shape. A 12-person shop records 1,500 direct hours in a month and uses a $38 loaded labor rate in its bills of materials. If payroll for those people actually cost $61,000, applied labor ($57,000) falls $4,000 short. That gap is the number to explain every month. If it keeps growing, the rate in the BOM is out of date.

Scrap and yield: decide where loss shows up

The bill-of-materials setup Intuit describes has a quantity for each component. It has no separate scrap or yield percentage. That leaves two honest options:

• Put expected loss into the quantity. If one unit uses 2.0 feet of stock and you lose about 5% in cutting, enter 2.1. Standard cost then includes normal scrap.
• Record scrap when it happens. Build to the true quantity and record losses as an inventory quantity adjustment to a scrap account under cost of goods sold. Abnormal waste then shows up as its own line.

Many shops use both: normal loss in the quantity, and anything unusual adjusted out. The yield percentage itself stays in Excel, updated from your counts.

Landed cost on Platinum and Diamond

Landed cost is part of Advanced Inventory on Enterprise Platinum and Diamond. You enter the inventory bill and the freight or duty bill separately. Then, under Inventory › Calculate Landed Cost, you add both and split the shipping and handling by quantity, amount, percentage or S&H cost before posting to the bill. Two limits apply. Intuit says landed cost is not designed for multiple currencies, so bills in different currencies are not converted. Allocation also happens bill by bill, so a container that spans several vendor bills needs a plan before it arrives.

Who does what: QuickBooks or the spreadsheet

When this setup stops being enough

This works for a shop with one or two levels of assembly, one currency, and a production manager who plans from a weekly build list. It starts to strain when you need labor tracked by operation, routings across work centers, MRP across several plants, or costing by lot through several process steps. At that point, the spreadsheet is holding up the business, and an ERP is worth pricing honestly.

Frequently asked questions

Can QuickBooks Enterprise track labor cost in a manufactured product?

Yes, at a standard rate. Add labor and overhead to the assembly’s bill of materials as other charge items at a per-unit rate. QuickBooks does not work out that rate or track labor by operation, so the rate comes from a monthly spreadsheet and the gap against actual payroll is reviewed each month.

Does QuickBooks Enterprise support FIFO inventory costing?

Yes, with Advanced Inventory. Intuit’s FIFO setting recalculates inventory transactions from a start date you choose, and changes the Inventory Valuation, Balance Sheet and Profit and Loss reports. Without it, QuickBooks Desktop uses average cost.

Which QuickBooks Enterprise tier has landed cost?

Platinum and Diamond, as part of Advanced Inventory. Freight and duty bills are allocated across inventory and assembly items by quantity, amount, percentage or shipping cost. Intuit notes it is not designed for multiple currencies.

How should a small manufacturer record scrap in QuickBooks?

Either put normal loss into the component quantities in the bill of materials, or build to the true quantity and record actual scrap as an inventory adjustment to a scrap account under cost of goods sold. Many shops do both, and track yield percentages in a spreadsheet.

We are not a CPA firm or tax adviser. Confirm your inventory costing method, overhead absorption and any year-end adjustments with your CPA. Moving a manufacturing file from Sage 100 to QuickBooks? Our Sage 100 to QuickBooks Enterprise conversion explains how bills of materials, item costs and the inventory balance are rebuilt and reconciled before go-live. Already on Enterprise and want the bills of materials and rates set up properly? See QuickBooks Enterprise setup.