How do I manage manufacturing work in process or progress (WIP)?
Last updated: Mar 06, 2014
Article ID: HOW15232
There are two kinds of Work in Process:
- Manufacturing Work in Process (MWIP) where materials are taken out of Raw Material Inventory but is not yet put into Finished Goods Inventory.
- Contracting Work in Process (CWIP) where expenses are accumulated for a project in an Other Current Asset account, and then moved to COGS or Expenses when the project is completed and the income is recorded.
Note: Work in Process and Work In Progress are synonymous.
Manufacturing Work in Process (MWIP) is set up using inventory assemblies and/or inventory adjustments.
Manufacturing Work in Process (MWIP)
Estimated Time: 25 minutes
- Create 3 Inventory Asset sub-accounts:
- From the Lists menu, select Chart of Accounts. The Chart of Accounts window opens.
- Click the Account drop-down arrow and select New. The New Account window opens.
- Select the Other Account Types option and select Other Current Asset from the list, and then click Continue.
- Create a sub-account of the QuickBooks-generated account Inventory Asset and name it Raw Materials.
- Repeat steps 1 though 4 above to create two more Inventory Asset sub-accounts: Work in Process and Finished Goods.
- Create Inventory Items to track raw materials and associate them with the Inventory Asset: Raw Materials:
- Select the Lists menu and select Item List. The Item List window opens.
- Click the Item drop-down arrow and select New. The New Item window opens.
- Click the Type drop-down arrow and select a Inventory Part type. In the Inventory Information area at the bottom of the window, click the Asset Account drop-down arrow and select Inventory Asset: Raw Materials.
- Repeat step 2 above to create Inventory items and associate them with the Inventory Asset: Work in Progress.
- Repeat step 2 above to create Inventory items and associate them with the Inventory Asset: Finished Goods.
- When you take Raw Materials out of Inventory, create a Build Assembly for a sub-assembly item that takes items out of Raw Material Inventory and enters the sub-assembly into Work in Process:
- Select the Vendors menu and select Inventory Activities, and then click Build Assemblies.
- Click the Assembly Item drop-down arrow and select the sub-assembly from the list.
- Enter the Quantity to Build.
- Enter the date you took or will take the items out of Raw Materials Inventory.
- Click Build & Close or Build & New. This credits the Raw Materials Inventory for the costs of the parts and debits the Work in Progress Inventory for the value of the sub-assembly
- When you finish processing the materials, enter a second, final assembly that takes the goods out of Work in Process and puts them into Finished Goods.
Here is an example for manufacturing darts. Since it takes a relatively long time to assemble the darts, you need to track Work in Process to have an accurate counting of your inventory.
- Set up Inventory Items for shafts, bodies, feathers and glue. Associate them with the Raw Material Inventory account.
- Set up a Inventory Assembly for a dart consisting of one shaft, one body, three feathers and dollop of glue. Associate this assembly with the Work in Process inventory account.
- Set up a Inventory Assembly for a box of darts consisting of six darts, one box and one label.
- When you need to make 25 boxes of darts, record taking the components out of inventory with a Build of 150 dart assemblies. The Build removes the components from Raw Material Inventory reducing both the quantity and value on hand and it will add the darts to Work in Process Inventory, increasing both the quantity and value on hand. The value of the Assembly is based on:
- The average cost of the components that have an average cost.
- The cost of the components that do not have an average cost.
- When the darts have been finished and packaged, enter a final assembly Build for 25 Boxes of Darts. This Build will take 150 darts out of Work in Process Inventory and 25 boxes and 25 labels out or Raw Material Inventory. The value of the Work in Process Inventory is reduced, the value of Raw Material Inventory is reduced and the value of Finished Goods inventory is increased.
- Entering an Invoice for a box of darts records the Revenue from selling the darts and recognizes the COGS for producing the darts.
Note: You can achieve the same effect by using the Adjust Quantity/Value On Hand window. However, using the Inventory Assemblies is easier.