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It is usually comprised of the full amount of raw materials required for a product, since that is added at the beginning of production, plus the cost of additional processing as a unit progresses through the various manufacturing steps. Work in progress is typically measured at the end of an accounting period, in order to assign a valuation to the amount of inventory that is on the production floor. WIP is one of the three types of inventory, of which the others are raw materials and finished goods. Work in progress may be reported on the balance sheet as a separate line item, but is usually so small in comparison to the other types of inventory that it is aggregated into a single inventory line item. It is extremely difficult to assign an accurate cost to a WIP item, since there may be many WIP items in various stages of completion as of period-end. To make the accounting process easier, some companies complete all WIP items and transfer them into finished goods inventory prior to closing the books, so that there is no WIP to account for. An alternative is to assign a standard percentage of completion to all WIP items, on the theory that an average level of completion will be approximately correct when averaged over a large number of units. It is possible to estimate the amount of ending work in process, though the result can be inaccurate, due to variations caused by actual scrap levels, rework, and spoilage. The calculation of ending work in progress is: Beginning WIP + Manufacturing costs - Cost of goods manufactured From a production theory perspective, there has been an increasing emphasis on reducing the amount of WIP units in the production process at any one time. By reducing WIP, there is less clutter in the production area and less chance of having defective products build up before being discovered, while the total investment in inventory can be kept as low as possible. Minimal WIP investment is a cornerstone of the just-in-time system of manufacturing. From a borrowing perspective, few lenders will allow WIP to be used as collateral for loans, since partially-completed inventory would be difficult for them to sell in the event of a borrower default. Similar Terms Work in progress is also known as work in process. Related Topics Journal entries for inventory transactions What is the ending work in process formula? What is the difference between work in process and work in progress? Work in process accounting
Integration
You can use the Schedule Manager to assist you in performing the period-end closing activities. For more information, refer to the following sections: Scheduler Monitor Flow Definition If you use the Schedule Manager with the flow definition, you can use the multilevel worklist to reprocess the faulty objects. For more information, see the following section: Multilevel Worklist The difference between the work in process in the current period and the work in process in the pervious period corresponds to the inventory change of unfinished products. The inventory change can be transferred to Financial Accounting (FI) and Profit Center Accounting (EC-PCA) during period-end closing for Cost Object Controlling when you settle. Settlement to FI capitalizes the inventories of unfinished products. The system debits the unfinished goods account (balance sheet) and credits the inventory change account (income statement). For goods that have been placed into finished goods inventory during the period, the system cancels the work-in-process inventory when you settle. This posting is performed in accordance with the posting rules defined in Customizing. The posting rules specify which accounts are posted during settlement. Note also the capabilities of user-defined error management.
The number of the order for which work in process is transferred into financial accounting is displayed in the Assignment field in the financial accounting document. This ensures that the postings to financial accounting can be explained. You can use the user-defined error management functions to influence which system messages permit or prevent settlement of work in process.
Prerequisites
You must make sure of the following: In Customizing for Product Cost by Order, default rule PP1 (Production Material Full Settlement) must be entered as the default value for the order type. That the following steps have been carried out in Customizing for Product Cost Controlling under Cost Object Controlling Product Cost by Order Period-End Closing Work in Process: o Define Results Analysis Keys For work in process at actual costs, use results analysis key 000002. o o o o o o o Define Results Analysis Versions Define Valuation Method (Actual Costs) Define Line IDs Define Assignment Define Cost Elements for WIP Calculation Define Update Define Posting Rules for the Settlement of WIP
In the posting rules, you specify the G/L accounts to which you want to settle the work in process. That a cutoff period is defined to protect the data of the previous period from being overwritten The cutoff period divides the life cycle of the production order into open and closed periods. o o The work in process calculated up to the cutoff period is not changed the next time WIP is calculated. The work in process calculated for later periods is overwritten by the current WIP calculation.
To prevent data that has already been posted from being changed, you usually define the cutoff period as the period preceding the results analysis period.
For a production order or a run schedule header, work in process is calculated in May, June, and July. The valuation for July should not change the work in process for May and June. You set the cutoff period to period 06 and calculate work in process for results analysis period 07. That the definition of the controlling area in Customizing for General Controlling was checked The currency type of the controlling area (under Basic data) controls which currency is allowed as the controlling area currency and whether this currency can differ from the currency of the company codes assigned to that controlling area. You can use the All currencies indicator (under Control indicators) to specify whether the values are updated only in the controlling area currency or also in the transaction currency and the object currency. WIP is always calculated in the controlling area currency and settled to Financial Accounting in the company code currency. If you are costing across company codes with different currencies, the WIP is also updated in the company code currency. That settings are made in reporting that enable you to display the work in process
That part of the work in process can be capitalized That no work in process can be capitalized
The cost estimate used to valuate the work in process may contain costs that are not relevant for inventory valuation, such as sales and administration costs. In a product cost estimate with a quantity structure, these costs are shown in a separate cost component view. Costs that are not relevant to inventory valuation are not used for the valuation of the work in process. In joint production, the work in process is shown separately for each co-product at the level of the order item.
master record is set to S(standard price) and that a current standard cost estimate for the material exists.
Improving Performance
You can use parallel processing to reduce the runtime of the WIP calculation process. If you perform WIP calculation outside the Schedule Manager, enter a server group for background processing. If you perform WIP calculation using the Schedule Manager, set the Parallel processing indicator in the selection screen of the program when you create the job variant. An entry field then appears in which you enter the server group.
Constraints
Work in process cannot be calculated separately by operation or phase.
You can influence the messages output in the log of WIP calculation by using user-defined error management. See Integration in this section.
Example
In the first two periods, work in process is calculated and passed on to FI and EC-PCA during settlement as a stock change. In the third period, the last goods receipt is entered for the order. The work in process created previously is canceled. Work in Process Period 1 2 3 Status Released Released Delivered WIP (Cumulative) 200 300 0 Inventory Change 200100300
When you settle, the calculated work in process is passed on to Financial Accounting by period even though the settlement type is full settlement. With this method, you must make sure that the work in process is canceled before the variances are settled to stock. You do this by means of the status of the order. See also: For information on the default rule and the settlement type, refer to the following section: Product Cost by Period or Product Cost by Order? For information on the control parameters for Cost Object Controlling, see the following section: Control Parameters in Cost Object Controlling For information on the valuation strategy with a valuated sales order stock, refer to the following section: Valuated Sales Order Stock: Valuation Standard Price with Valuated Sales Order Stock For information on calculating variances and scrap with valuated sales order inventories, see the following sections: Variances and Scrap with a Valuated Sales Order Stock For information on the Customizing settings for WIP calculation, refer to the IMG for Product Cost by Order under Period-End Closing Work in Process.
For information on viewing the work in process in the information system, see the documentation Product Cost Controlling Information System and the implementation guide (IMG) for the Product Cost Controlling Information System. For information on updating data in multiple valuation views, refer to the following section: Transfer Prices in Cost Object Controlling For additional performance improvements in CO-PC, see the section: Performance in Product Cost Controlling