How to Read a Bill of Materials (BOM) Like a Pro!

What Is a BOM?

A Bill of Materials (BOM) is a detailed list of all the components, parts, raw materials, and subassemblies needed to manufacture a finished product. Think of it as the recipe for building something—from a simple product to a complex machine.

Each line in a BOM typically includes:

• Part number or SKU
• Description
• Quantity required
• Unit of measure
• Reference to subassemblies (if applicable)

Why BOMs Matter in Accounting

For accountants, a BOM isn’t just a technical document—it’s a financial blueprint. It directly impacts:

• Inventory valuation
• Cost of goods manufactured (COGM)
• Variance analysis
• Budgeting and forecasting

Understanding a BOM helps accountants trace costs accurately, identify inefficiencies, and ensure that financial reports reflect the true cost of production.

How to Read and Interpret a BOM

Here’s a step-by-step approach:

1. Start with the finished good: Identify the top-level item being produced.
2. Review each component: Understand what materials or parts are needed and in what quantities.
3. Check for subassemblies: Some BOMs are multi-level, meaning components themselves have their own BOMs.
4. Validate quantities and units: Ensure the math checks out—errors here can lead to major costing issues.
5. Cross-reference with inventory: Confirm that the parts listed match what’s in your system.

Common Mistakes to Avoid

• Ignoring unit conversions: Mixing up units (e.g., pieces vs. kilograms) can distort cost calculations.
• Overlooking subassemblies: Failing to expand multi-level BOMs can lead to incomplete cost rollups.
• Using outdated BOMs: Always verify that you’re working with the latest version—engineering changes can affect costs.
• Not linking BOMs to actual inventory: If your BOM doesn’t match what’s physically or digitally tracked, your numbers won’t add up.