Valuation of Work in Process

This process is used to valuate work in process (WIP) for inventory valuation in cost accounting.

The WIP value is calculated for all open manufacturing orders and work orders. The value is based on the inventory accounting cost of the material when it is issued from inventory and the value-adding efforts in the form of operations (either done by the user or by a subcontracter).

For internal operations increase in value is calculated in hours by distributing an hourly rate, which can vary between work centers, amongst the specified products. For external operations on the other hand, the purchase order price of the subcontract operation is used for the calculation.

The difference in valuation between the WIP book value and the calculated value is recorded in a special WIP adjustment account.

The WIP valuation can either be continuous or periodic. In the first case, every change immediately results in a new account entry in accordance with special WIP accounting strings. In the second, a WIP valuation is conducted at a given time.

The process described below is used for periodic WIP valuation. The routine can also be used to check the WIP value on a particular occasion without updating the general ledger.

Before you start

  • FAM function CA50 is defined in 'FAM Function. Open' (CRS405)
  • WIP accounts are defined in 'Accounting Identity. Open' (CRS630). Alternative 2 must be selected in the 'Inventory account' field in the E panel.
  • Debit and credit accounts for valuation differences in WIP are defined in 'Accounting Identity. Open' (CRS630)
  • Parameters for recording the variance between the calculated inventory value and the posted WIP value are entered in 'Settings - WIP Valuation' (CAS030)
  • Accounting rules CA50-912 and CA-920 are defined in 'Accounting Rule. Set' (CRS395). These rules identify which accounts to use, based on the calculated WIP value. This value is then compared to the actual value in the general ledger.

Follow these steps

The section below describes the activities included in the process.

  1. Generating WIP Valuation Proposal

    Proposals for WIP valuation are produced in 'WIP Value. Open' (CAS170). More than one WIP valuation can be processed at the same time.

  2. Verification and Approval of WIP Valuation Proposal

    The printed WIP valuation proposal is checked and, if necessary, adjusted.

    The proposal is approved, by specifying in 'WIP Value. Open' (CAS170) that the general ledger will be updated.

Related topics