Manufacturing and Subcontracting in Sage 300 ERP

By | September 20, 2014

Manufacturing can be broadly classified into two parts:

1. ‘Manufacturing’ – where an organization purchases all the required raw materials on their own, processes them and then manufactures a finished good.
2.‘Subcontracting’ – where an organization receives all the required raw materials from its principal and then, process them and manufactures a finished good. This type is also referred as ‘Job Work’.

Live Webinar: September 25, 2014 at 1pm EDT
GUMU Sage CRM integration with Sage ERP X3 – Click to Register

These two different types of process have their own set of meaning and accounting which has to be maintained and executed. We come across many such organizations which practice both kinds of manufacturing while few of them practice either of them. From the system perspective it becomes very essential to maintain and execute these practices as both of them follow different set of rules and accounting principal.


Sage 300 ERP has always helped Configure such diverse process efficiently which help in achieving the desired results as per the defined standards. One major part in this kind of configuration is costing because in both kinds of process the costing differs in the same way as A differs from Z.

Basically in manufacturing there is normal costing process executed, where the raw materials have a cost associated with them along with the labors, tools and overhead costs, these are then are prorated on the finished goods. A complete material costing is being generated from the system indicating what cost was there of the Semi-finished and finished goods at various stages.


Coming to the Subcontracting part, in this case the organization does not procure all the required raw materials by their own but the principal provides them so that they can process it on behalf of principal and then manufacture the required Finished good. In this case, the material will not have any cost associated with them as they are provided by the principal, while the labor, tools and over-heads will have a cost associated with them. The main change here is, this cost will not get prorated on the finished goods and instead it will be expensed out to book the consumption. Even In this case a complete material costing is required which should help derive what is the cost of the production and the efforts given.

Based on this reports and analysis, the subcontractor will analyze the cost of production and will charge the principal accordingly. Thus here deriving the production cost becomes very difficult as there is no material cost involved, also the other terms like labor, tools and overheads in practical has a cost associated but from system perspective it should not have any cost with them. This is because we never prorate this additional cost on the finished goods which is being manufactured as it is the property of the principal and not the organization who is manufacturing it.

Sage, with the help of configuration changes and few add-ons help us achieve such kind of process and costing very efficiently so that the desired processes can be executed as per the defined standards.

Also Read:

1. Advantages of ERP in Manufacturing Companies
2. Order Process for Manufacturing Company in Sage 300 ERP
3. Inventory Cost Analysis in Sage 300 ERP
4. Sage 300 ERP in Sugar Industry
5. Sage 300 ERP for Ceramics Industry