Work in Progress

[Leslie66]

I am trying to calculate the WIP for the end of my current period but it has been a while since I have done this. Do I calculate this using the sales price and % of work completed against direct costs involved?

For example if sale price is £1000 and cost of making the product including labour is £500 and the product is 75% completed - what would the WIP be?

 

[teddys]

1. Work-in progress is based on your cost so 75% of £500
2. Stock valuation should actually form part of your 'accounting policy'.

 

[UK Contractor Accountant]

What business are you in?

For a builder wip is basically the sum of all direct costs to date on each job that is not complete at your accounting year end date. You would include labour, materials, and other direct costs attributable to the job e.g skip hire.

For long term contracts (over 1 yr) you will need to include a proportion of profit on the contract in the wip value at year end - normally you would have a works valuation carried out by a qualified professional.

 

[Leslie66]

1. Work-in progress is based on your cost so 75% of £500
2. Stock valuation should actually form part of your 'accounting policy'.

The stock is currently in 'inventories' on the accounting package we use. For WIP - does the stock used in the product needs moving to WIP?

 

[Leslie66]

There is only about five jobs/products this needs doing for. Time frame for each one varies from 6 to 16 months from start of the job.

 

[teddys]

The stock is currently in 'inventories' on the accounting package we use. For WIP - does the stock used in the product needs moving to WIP?

Yes; stocks could be broken down to 'raw materials', WIP and finished goods. I'm not an expert on the 'accounting software' though!

 

[Leslie66]

sale price £1000
Direct costs: Stock £100, Components £75, tools £25, labour £250. (£450)
Completion: 50%

Is WIP 50% of sale price or direct costs? (£500 or £225). I am sure when I have done this in the past (a long time ago) WIP value should be somewhere between direct costs and sales price?

Also does this get calculated differently say a different percentages of each direct cost has been used (i.e stock 100% of the £100, components 50% of £75 etc)?

 

[UK Contractor Accountant]

sale price £1000


Is WIP 50% of sale price or direct costs? (£500 or £225). I am sure when I have done this in the past (a long time ago) WIP value should be somewhere between direct costs and sales price?

Its neither its the sum of all the direct costs incurred to your year end date- if you have used £100 of stock, £40 components, £20 tools & £150 labour WIP would be £310 (£100+£40+£20+£150)

 

[Leslie66]

Its neither its the sum of all the direct costs incurred to your year end date- if you have used £100 of stock, £40 components, £20 tools & £150 labour WIP would be £310 (£100+£40+£20+£150)

Thanks! What is the entries for this?

Do I have to move the stock etc from inventories and labour from expenses in to WIP? Or is there just one entry to make?

 

[Scalloway]

I would do journal of the WIP amount from each appropriate code then reverse it at the start of the following year.

 

[Leslie66]

I would do journal of the WIP amount from each appropriate code then reverse it at the start of the following year.

I will be doing this on a monthly basis from now on. What will be the journal other entry to the WIP?

 

[Scalloway]

sale price £1000
Direct costs: Stock £100, Components £75, tools £25, labour £250. (£450)
Completion: 50%

Is WIP 50% of sale price or direct costs? (£500 or £225). I am sure when I have done this in the past (a long time ago) WIP value should be somewhere between direct costs and sales price?

Also does this get calculated differently say a different percentages of each direct cost has been used (i.e stock 100% of the £100, components 50% of £75 etc)?

Using those figures as an example

Dr WIP...........287.50
Cr Stock..................100.00
Cr Components ........37.50
Cr Tools....................25.00
Cr Labour................125.00

Then do the opposite at the start of the next month to reverse it.

 

[Leslie66]

Using those figures as an example

Dr WIP...........287.50
Cr Stock..................100.00
Cr Components ........37.50
Cr Tools....................25.00
Cr Labour................125.00

Then do the opposite at the start of the next month to reverse it.

Thanks, If the stock has come from inventories then inventories should be credited?

 

[Scalloway]

Yes you will need to update your inventory.