QB was not designed to do anything but buy a part and sell it, so this and other real life situations all require a work around.

Let’s suppose that you have an item ABC that you buy, then you send it out to be machined and get it back as a finished item CDE. The cost of item CDE is the combined cost of the purchase of item ABC and the machining cost.

Make sure prefereneces is set to use sales orders, and that sales orders are deducted from the on hand qty, and the outside vendor is a customer as well as a vendor, you will have to add something to the name to list it in both places, I use a “-V” in the vendor name.

Purchase the item ABC as you normally would. That gets the cost of ABC on the books. Lets say you bought 10 sticks of ABC so item ABC now has a qty of 10 and an average cost.

Lets say you now need to have 6 sticks machined.

Create a sales order for the outside vendor and list the item ABC, qty 6, price is zero. Deliver the sticks to the vendor.

If you add the column “on sales order” to the item list display you will easily see how many sticks are at the vendor when viewing the item list.

Create the inventory item CDE it there is not one already, inventory not assembly.

When the vendor is done machining, receive the item CDE as you would any other inventory item and pay the bill. That gets a qty of CDE on the books with the cost being equal to the machining charge.

Now the work around.

Create a clearing expense account if you do not have one already. Bring up the sales order and mark it closed. Bring up inventory adjust and set the adjusting account to the clearing expense account, lower the qty of item ABC by 6. That sends the cost of the 6 pieces of ABC to the clearing expense account. Write down the total value in the clearing expense account.

Bring up inventory adjust again, set the adjusting account to the clearing expense account, mark the adjustment as a value adjustment, find item CDE, do not change the qty, in the new value column enter the old total value PLUS the amount that was in the clearing account, click save. That takes the cost of item ABC which was in the clearing account out and adds it to the cost of item CDE, QB then recalculates the average cost of item CDE, which is now the cost of machining and the cost of purchasing the sticks.

——- tweak the process —
IF, key word is if, if you never sell item ABC then you can tweak this process some to make it easier. Set the expense account on the item screen for item ABC to the clearing expense account, and instead of closing the sales order, create a zero price invoice and save it. That sends the cost of the ABC to the clearing expense account. But this tweak only works if you never sell item ABC. If you do sell item ABC the cost will go to the clearing expense account in stead of COGS and that is not right.