Analyzing WIP Inventory Value in Standard Cost Environments

Periodically, you must determine the value of material in process. Use this data to verify the general ledger balance for WIP inventory as well as to provide management with an indication of in-process inventory levels.

In-process inventory includes three parts:

  • Raw material or subassemblies for regular production that are issued to the shop floor not yet used in an assembly.

    This portion of in-process inventory is stored in the work center's WIP locations and is included as part of the stockroom inventory valuation. Materials in WIP locations use the issue or replenishment method of issuing material.

  • Items in various stages of assembly (including material consumed from the WIP locations) as well as labor, machine, overhead, and outside processing costs that are incurred up to the point that the WIP inventory value report is run.

    Additionally, components that are kitted to a production ID are directly charged to production and are, therefore, included as part of the in-process inventory (although they might not yet be part of the assembly item). The WIP Value report does not include the costs of scrapped components or assemblies that are completed to stock.

  • Rework or tear down assemblies or subassemblies that are issued to the shop floor.

    You might issue additional components to rework an item and incur additional labor and overhead expenses to rework or tear down.

PeopleSoft Manufacturing uses information that is associated with a specific production ID or production quantity as the basis for determining the WIP value; it also maintains a status for all production. WIP value comprises production with a status of:

  • In process

  • Pending complete

  • Complete

  • Closed for labor

Production with a status of entered, firmed, released, canceled, or closed for accounting status is not included in the WIP value.

PeopleSoft Manufacturing uses various records to determine WIP value:

Record

Function

Production ID Component List

Determines the components that are used. Maintains the quantity of each component that is issued into production. By costing the component's issued quantity, the system can determine the lower-level costs of the assembly. The component list also contains the rework or teardown assembly issue quantities. This value is determined by multiplying the assembly item's this-level and lower-level costs by the issued quantity.

Earned Conversion Costs

Maintains the labor, machine, and overhead costs that are incurred to date for the production ID or production quantity. This includes conversion costs that are incurred for a subcontracted operation.

Assembly Scrap Costs

Maintains the value of scrapped assemblies to subtract from the in-process value. This includes scrap costs that are incurred for a subcontracted operation.

Production Header Output Record

Contains the quantity that is completed. For a single output production ID or schedule, this is the assembly quantity. For multiple output production, this includes the quantity of primary, co-product, and by-product completions. The system also subtracts costed completions from the WIP value.

Use the WIP Inventory Value report to analyze work in process. The basic procedure for determining WIP value is:

  • Determine the cost of components that are consumed from WIP locations or kitted directly to a production ID.

    If the production ID is for rework or teardown, the cost of the assemblies that are issued to production is determined.

  • Add any labor, machine, outside processing and overhead costs.

  • Add any waste by-product costs.

  • Subtract scrapped assemblies.

  • Subtract assemblies and primary products, co-products, and by-products that are completed and moved to stock or to another production area.

The result is inventory remaining in process.

Understanding WIP Inventory Value Report Categories

The categories of cost across the top of the report correspond to the categories that are associated with the cost elements. They are:

  • Material

  • Inbound

  • Conversion (labor and machine)

  • Conversion overhead

  • Outbound

  • Other

PeopleSoft Manufacturing further defines each of these categories:

Summarization Category

Definition

PeopleSoft Manufacturing:

Component costs

These lower-level costs are the costs that are associated with the components that are issued to production.

If the PID is for rework or teardown, these costs represent the assembly items this-level and lower-level costs.

For each component, multiplies the issued quantity by the component's standard cost as its defined in the Current Costs by Item record. It then combines this-level and lower-level costs for a given cost element.

Earned this level costs

The assembly's labor, machine, subcontract, and overhead costs earned to date based on the assembly operation completions that are recorded. Maintained in the SF_EARNCONCOST record.

Subtracts negative records that are associated with a production ID (due to completion reversals or revaluations) from the total.

Waste by-product costs

Costs that are associated with the disposal or removal of waste by-products.

Adds costs due to waste by-products to the total for the cost category. It is determined by multiplying the completed quantity as stated in the Production Output record by the cost of the waste item.

Less assembly scrap

Maintained in the SF_SCRAPCOST record.

Adds negative records (due to reversals of scrap or revaluations) from the total for the cost category.

Less assembly completions

Costs that are associated with the assemblies that are completed to stock.

Determines this value by multiplying the quantity of assemblies that are completed to stock or another production area by the assembly's standard cost. Includes primary item, co-products, and recycle by-products. It combines this-level and lower-level costs for a cost element.