About Job WIP Costs

The system maintains two sets of work-in-process (WIP) cost buckets for each job: WIP Total and WIP Complete. Both buckets are divided into subcategories for material, labor, fixed overhead, variable overhead, and outside costs.

In general, WIP Total is the cost that has gone into WIP for the job. WIP Complete is the amount moved out of WIP when the completed item was moved into inventory. The two values mirror the debits and credits to the job's WIP accounts, which are sent to the Shop Floor Distribution journal. The WIP Remaining value is the balance of the WIP Accounts for the job.

The WIP Total and WIP Complete fields are printed on the WIP Valuation report, along with the WIP Remaining column, which displays the difference of the total and complete values. You can also view the WIP Total values on the Cost Detail tab on the Job Orders form.

Note: When you issue a manufactured material to the job, the system does not put the material's total value into the WIP Material Total bucket. The cost breakdown (material, labor, etc.) at which the material was being carried in inventory is carried over to the corresponding WIP Total buckets. Therefore, the WIP Labor Total bucket contains the labor portion of any issued material's cost as well as all labor cost posted directly against the job.

How the WIP Values are Calculated When Using Actual Costing

If you are using Actual costing (whether Average, LIFO, FIFO, or Specific), the WIP Total is the actual cost posted to the job. WIP Complete represents the total cost at which pieces have been moved from the job into inventory.

Depending on how the job is processed and how the Costs Based on Complete shop floor control parameter is set, the transactions that move the item into inventory may be performed at the job's planned cost, actual cost, or a combination of the two (see the Costs Based on Complete field topic for a description of the job's planned and actual cost). Therefore, if the planned cost is considerably higher than the actual cost posted to date, WIP Complete will exceed WIP Total, causing a negative WIP Remaining value on the WIP Valuation report.

When you close the job, the system sets WIP Complete equal to WIP Total.

If you close the job using a job transaction that moves the item into inventory, the move transaction is performed at the difference between the WIP Complete and WIP Total; therefore, no costs need to be written off.
If you close the job manually by changing the job's Status field to complete on the Job Orders form, the difference (the amount still in WIP) is written off to the Inventory Adjustment account.

How the WIP Values are Calculated When Using Standard Costing

If you are using Standard costing, the system increments the WIP Total by what it calculates as the standard cost of each individual transaction posted against the job.

For example, if you post a run transaction that completes pieces at an operation, the system debits WIP and posts to WIP Total the amount of labor (and perhaps overhead) necessary to complete that quantity. It does so using the planned labor hours, run rate, efficiency, etc. found in the either the job's routing or the item's standard routing (depending on how the Calculate Variances Against shop floor control parameter is set).

With Standard costing, all transactions that move the item into inventory are done at the item's standard cost. So, when you move an item into inventory, the system posts the WIP Complete buckets with (quantity moved * the item's standard unit cost). WIP Remaining can also be negative if the standard costs of the individual transaction's costs posted into WIP are less than the item's standard cost.

When the job is closed, the system sets the WIP Total equal to WIP Complete (the opposite of what occurs with Actual costing). It writes any difference between the two to either Material Usage Variance, Routing Variance, or both accounts. You can think of this difference as the difference between the "standard" value of each transaction posted against the job (WIP Total) versus the standard cost of the item * the quantity completed on the job (WIP Complete). After the system calculates the material usage variance and routing variance, it sets the WIP Total values equal to the WIP Complete values so it does not write off the same routing variance amount again in the event you re-open or re-close the job.

About Material Usage Variances

The material usage variance is a general ledger account the system uses for job material issues or withdrawals where the quantity issued/withdrawn is not equal to the standard quantity required.

When you close a job for a standard-costed item, the system uses this formula to calculate the material usage variance for each material:

(qty issued - qty variance - qty required) * item standard cost

Where:

qty issued: The quantity issued of the material to the job.
qty required: The quantity of the materials that should have been used on the job. Calculated as:
if material is per unit: job qty complete * material qty per assembly
if material is per lot: material quantity per assembly
qty variance: The quantity variance written off to material usage variance on previous closings of the job.
item standard unit cost: The material's standard cost at the time the job is closed.

About Routing Variances

The routing variance is a general ledger account used for clearing money still in WIP when a job for a standard-costed item is closed. The system makes entries to this account when there is a difference between the amounts that went into and out of WIP not attributed to a material usage variance, labor rate variance, labor usage variance, or overhead usage variance.

The majority of entries to routing variance occur when jobs are closed, and in some situations, entries occur when you post job transactions. Sometimes the system uses the routing variance account as a default account for variances that occur for which there are not specific variance accounts. To limit entries to this account and to ensure entries are made to the more specific accounts such as labor rate variance, labor usage variance, overhead usage variance, etc., set the Calculate Variances Against parameter to Standard.

Routing variances may occur for the following reasons (some of these examples depend on the setting of the Calculate Variances Against parameter):

Under- or over-reporting production at operations
Scrapping items as they are being moved through the routing
Moving more or fewer items to inventory than were moved through the routing
Not posting a setup transaction against an operation that has planned setup hours
Entering a quantity complete on a job that is different than the item's lot size for an item that has setup cost and/or per-lot materials
Calculate Variances Against = Actual: a job operation's rates and times are different from the values for that operation in the item's standard routing
Calculate Variances Against = Actual: the quantity per assembly of a material on the job is different than its quantity per in the parent item's standard BOM
Calculate Variances Against = Actual: a job operation exists that is not in the item's standard routing
Calculate Variances Against = Standard: the overhead rates on the job operation are different than those on the item's standard operation

Note: Multiple reasons may apply to any one job. Therefore, if you are attempting to identify a routing variance amount for a job, you should determine how many reasons apply and total your estimated calculations for each reason (or net them, since some reasons may cause a debit while other reasons cause a credit on the same job). See our support site for knowledge base article 687030, which provides detailed recommendations for identifying and avoiding these variances.