The reason it isn't working is that it does not work...
How's that for a circular reference?
You cannot have a B type in a K type BoM and have it credit inventory appropriately. Just doesn't have the programming to do it.
ISTS was looking at adding the ability to put a B type into a WO BoM, but haven't done that yet. Perhaps Lynn would like to also add this capability at the same time.
I personally had a client who really wanted these capabilities and was frustrated by the fact that DBA did neither.