Understanding the WIP Revaluation Program

Whether you use standard costing or an actual costing method, the business must be able to revalue work in process inventory whenever material or labor costs change. Whenever the costs for an item change, the Cost Changed Flag (CCFL) field for this item is set to 1 in the Item Cost table (F4105). This cost change might be caused by a company's decision to update costs to reflect changed circumstances and to maintain realistic pricing.

The WIP Revaluation program (R30837) can be run for standard costed items in discrete, process, and configured work orders. For actual costing, you can run the WIP Revaluation program only for material cost changes in discrete work orders.

The purpose of work in process revaluation is to revalue the production costs for all open work orders in the Production Cost table (F3102), based on the latest item cost, as well as unaccounted completed and scrapped amounts for actual costing. The report displays any differences between the original work-in-process (WIP) values and the new WIP values. You can set a processing option to create WIP Revaluation journal entries in the Account Ledger table (F0911) for differences between the old and the new WIP values. You can let the system supply the default work order number in the Subledger field in the F0911 table. The WIP Revaluation program does not revalue on-hand inventory and cannot be performed for closed work orders. Closed work orders are characterized by a value of 3 for the Variance Flag (PPFG) field in the Work Order Master table (F4801).

If you use standard costing, performing an automated WIP revaluation ensures that work in process inventory always reflects any updates to component and labor costs and eliminates artificial variances that are generated by cost changes in the middle of a work order life-cycle. It also makes manual journal entries for WIP revaluation unnecessary.

For actual costing, WIP revaluation accounts for a situation in which subassembly work order costs are reported after the actual cost subassembly item was already issued to the parent item. Without WIP revaluation, the true costs of the subassembly work order are not reflected in the parent work order.

You can access the WIP Revaluation program in three different ways to revalue work in process. For standard costing, you can call the WIP Revaluation program from the Frozen Update program (R30835) by setting a processing option and specifying the desired program version. In this case, the system runs WIP Revaluation for all items that are processed through the Frozen Update program. If any item is flagged for cost change, any open work order that contains this item is revalued, along with any work orders to which the parent item was issued. This logic is carried through to the highest-level parent item. All cost types in the Production Cost table (F3102) are included in the data selection.

For actual costing, you can call the WIP Revaluation program from either the Work Order Inventory Completion program (P31114) or the Variances program (R31804) by setting the appropriate processing option and specifying the desired program version. Running WIP Revaluation updates the parent item's production cost based on the subassembly item's latest production cost. If you call the WIP Revaluation program from the Work Order Inventory Completion program, the system revalues the work orders with the completed item, as well as their parent work orders. Only the material cost types in the Production Cost table are included in the data selection.

Note: If an actual costed item is defined with a cost level of 3 (item, branch, location, and lot), the costs for this item have to be tracked at the lot or location level to accurately calculate and revalue the costs. Completing work orders to and issuing them from a lot or location enables the system to associate the item unit costs that are calculated for the lot or location at the time of completion to any orders to which the item is issued.

When WIP Revaluation is initiated from the Variances program, it revalues all open work orders with items that are flagged for cost change in the Item Cost table, as well as their parent work orders. When work in process is revalued, the system clears the cost change flag. All cost types in the Production Cost table are included in the data selection for standard costed units. For actual costing, only the material costs are considered.

You can also call the program as a standalone batch program from the menu. This choice enables you to perform WIP revaluation without having to change existing processes. It also enables you to rerun WIP revaluation if the revaluation process was terminated abnormally when another program called it. You can run the program for actual and standard costed items. All cost types in the Production Cost table are included in the data selection.

You can set a processing option to run the WIP Revaluation program in proof or final mode. If you call WIP Revaluation from another program, however, the mode of the calling program overrides this setting.