Manufacturing WIP in QuickBooks

| July 1, 2008 | 19 Comments

Tracking Work in Progress (WIP) in a manufacturing business can be complicated, depending on the characteristics of your manufacturing process. For an extremely oversimplified definition we can say that WIP is where you are taking items out of your raw material (component) inventory, but haven’t yet put it back into your finished goods inventory. I’m going to offer a tip on a short method of managing this in QuickBooks that may work for many manufacturers.

Who This Applies To

If your assembly process is very quick, you don’t need to worry about WIP. If you are making simple items that take a day or two, you most likely don’t have a lot of inventory tied up in assemblies that are in the process of being completed. QuickBooks fits this scenario well – issuing a “build” will remove the components from inventory and put the value back into inventory as a completed part.

Some businesses have assemblies that can take months to complete. In this case you could have a considerable amount of inventory tied up in WIP. These businesses will need to talk to their financial advisor to determine what the best way is to handle WIP from an accounting standpoint.

A large number of manufacturing businesses that use QuickBooks fall in between. Assemblies may not take months, but at any given time you can look at the shop floor and see that there is a significant amount of inventory that is tied up in assemblies that haven’t been completed. Given that QuickBooks usually works with a single step assembly process – issue the build to consume component inventory and create assembly inventory – it can be difficult to determine exactly what you have in WIP, and what you have either available to use (builds not yet issued) or available to sell (builds completed). This is the type of situation where this tip will work best.

Intermediate WIP Assembly

What we are going to do is to create a “WIP assembly” for each of your finished products. Let’s say that you are making a widget that uses a sprocket and a wheel (I’m oversimplifying to keep this short). Create two assembly items, widget and widget-WIP.

The widget-WIP assembly will have the true Bill of Materials (BOM) for the item – the sprocket and the wheel.

The widget assembly will have one component, a widget-WIP.

When you start your assembly process you issue a build for the widget-WIP. This removes the appropriate number of sprocket and wheel items from your available inventory and creates the appropriate number of widget-WIP assemblies. I would give this assembly a description that says “DO NOT SELL” so it is obvious if you accidentally add one to an invoice.

With this you have moved your raw material inventory into WIP, where it isn’t available to be used for other jobs, but it isn’t available to sell. You can easily look at your inventory reports and see what you have in progress on the shop floor. You can even put a value on this (but talk to your financial advisor about this concept first).

When you complete the work you issue another build, this time for the widget itself. This removes the inventory from widget-WIP (reducing WIP inventory) and adds it to widget (adding it to finished goods inventory).

This approach might not fit everyone, and if you have a very large number of inventory assemblies it can be a pain to set up. I’ve given a very simple example here, feel free to play with it and ask questions!

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Category: Inventory, Manufacturing

About the Author (Author Profile)

Charlie Russell is the founder of CCRSoftware. He’s been involved with the small business software industry since the mid 70’s, focusing on inventory and accounting software for small businesses. Charlie is a Certified Advanced QuickBooks ProAdvisor. Look for Charlie’s articles in the Accountex Report blog, as well as his California Wildflower Hikes blog.

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Comments (19)

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  1. Don Petty says:

    I was wondering if direct labor hours to build the widget could be added to the widget-wip build? And overhead, can overhead and indirect costs be added to this? Thanks.

  2. Charlie says:

    Don, from a technical standpoint, yes you can add other costs into the BOM. You can create “other charge” items for instance, and add them to the BOM.

    From an accounting standpoint, however, it is trickier. I’m not an accountant so I usually don’t comment much on that side of things. However, how well this kind of thing works depends on how you account for labor. If you are using QB Payroll, for example, it is harder.

    I may be writing an article on this in the future, but it will take awhile because I have to work out a lot of details.

  3. dave says:

    I am a small winery and I would like to use the inventory function to help me track my bulk wine (wine in process) and finished case goods. I should mention that I am using quickbooks for mac 2009.

    I am having a hard time getting my head around how to build a bottle of wine from grapes purchased, to bulk wine while adding the costs of processing and barrel storage. From bulk wine, it is on to bottling – which would be an group assembly of bulk wine, bottles, labels, and corks.

    Is it possible to do this with groups? How would you treat grapes and turn them into bulk wine WIP?

  4. Charlie says:

    Dave, I’m not familiar with the capabilities of the Mac version, so I don’t know what the differences are from the Windows versions. If you don’t have an Inventory Assembly item, it makes the task a bit more complicated. I wouldn’t use group items – they transfer things at the time that you sell the item. Unless you are filling the wine bottles one at a time for each customer, that won’t really work.

    Not knowing the volume that you work with, you can do this fairly simply even if you don’t have assembly items. You have inventory parts for corks, bottles, bulk wine. When you process them you are probably doing a large batch at once – you can do an inventory adjustment to reduce inventory by the number of bottles, lables, corks and gallons of bulk wine, and then an inventory adjustment to add the number of bottles of wine you produce.

  5. notsohappy says:

    Thanks, this is the only smile i’ve gotten re: quickbooks since i started wrassling with it in 2005. I hate it, having never had to work with something so restrictive and convoluted, however, I will sleep more lightly tonight, thinking only that it takes one widget-WIP to make one widget…doesn’t really help me, but is still sweet to think about. Myself, i am considering serving out the rest of my business sentence back within the confines of Excel formulae, where at least i can control and correct the massive amount of data that various entities insist must be recorded and sorted in varieties of peculiar ways that never really fit.

  6. Emelinda C. Palattao says:

    I have been using quickbook since 2003. Being an accountant I found it so convenient to use quickbooks for simple trading businesses . I have my own business now which is sewing dresses for kids and which I sell to retailers. How do I segregate to cost of production when I produce about a hundred styles and different sizes of dresses annually. How will I transfer the cost to finished products so that I will be able to tract the inventory of every size and style at the end of a period. Right now I am using a QB Pro 2008. Should I change it and with what version of quickbook?

    • Charlie says:

      Emelinda: You have several options, it is hard to give you a direct answer via this blog/comment. It depends on how you want to cost things, and control things. If you want to know what it takes to create every type of dress size/style, you have to track every type of dress size/style. QuickBooks isn’t the greatest for doing this, actually. It takes a lot of work to set up for each variation.

  7. Matt says:

    I am a wholesale distributor of commercial door products with fabrication capabillities. I just purchased a manufacture of door frame products that i stock.

    What is the best way to schedule / track manufacturing and fabrication in enterprise? I see intuit has a warehouse tracker but i am not sure that will suit my needs.

    Thanks, matt

    • Charlie says:

      Matt, that isn’t the kind of question that is easy to answer via comments here. There are many variables. And you are mixing manufacturing with multiple locations, which are two separate (although interrelated) issues. QuickBooks isn’t great at manufacturing (although I give you tips in this blog), and there are addin products that can help. QuickBooks doesn’t handle multiple locations (warehousing), but again there are addons that can help. Some of the addons only work with the Enterprise version…

  8. Sandy Kovalcik says:

    I frequently find your articles to be very helpful. I use Premier Mfg & Whsl 2008. When I do a build assembly, it typically reduces raw material & increases finished goods, as it should. But sometimes, when I do a build either all or part of the underlying entry impacts my Cost of Goods AC. This appears to be intermittent; a build for the same item will sometimes have a correct underlying entry & sometimes impact Cost of Goods. I can’t figure out why this is happening. I have looked at the component items in the BOM but can’t find anything irregular. Any suggestions? Thanks, Sandy

  9. Charlie says:

    Sandy, I’ve not run into that myself. I’d have to see a copy of the file (and if it is an intermittant issue, I don’t know if I would see anything). If a build impacts COGS, you should be able to open the register for that COGS account and see the adjustment and what kind of transaction it was? And work back from there?

  10. Sandy Kovalcik says:

    Charlie, Thanks for the suggestion. I thought there are no registers for expense accounts in QuickBooks. In any case, I can see that the adjustements to Cost of Goods are a Build Assy transaction type, and that is what is so perplexing. I guess I can just adjust for these problem entries in CoG by Journal Entry against the inventory account where they rightfully belong and monitor the CoG account to see when it happens again and adjust as needed. There aren’t that many of them, but it bothers me that I just can’t figure out what’s going on. Intermittant problems are always the worst. Thanks anyway. Sandy

  11. Charlie says:

    Sandy, nothing comes to mind at this moment, but without looking at the file it is hard for me to envision what might be going on, sometimes. If this occurs on a regular basis, I would monitor COGS after every build to see if it happens, AND monitor COGS periodically even without builds. I’m thinking that it might not be the build itself, but some change that happens after the build? You need to pin down the circumstances.

    Other things can change builds after they are built, but I wouldn’t expect this to be the manifestation. For example, if you issue a build, but then do an inventory transaction that changes component levels to go below what was needed, QB changes the build to “pending”. That isn’t the case here, but it is an example of how one thing can affect another.

    Also, the old tried and true – do a “rebuild” of the file to make sure that there isn’t a fluke due to a bad index. Although I don’t expect that to be the issue.

  12. Sandy Kovalcik says:

    Charlie, I actually figured this out. It turns out we had invoiced for certain assemblies before they were “built”. At the time of the invoicing there was a zero entry to reduce inventory and increase cost of goods. When we subsequently entered the build, QB went back and “completed” the sale transaction at the same time it created the build transaction; hence effecting the inventory account as well as the cost of good account. Interesting stuff. Sandy

  13. Charlie says:

    And I’ll bet that when you invoiced, you were going to negative inventory balances for the sold item? I should have pointed you that direction – negative inventory balances create big problems with COGS, as QB can’t figure out how to do the average costing for the items. When you replenished the shortage with a build, it corrected things. The COGS valuation should be accurate after it makes the adjustment, it would be wrong while there is a negative balance on hand for anything.

  14. Jose says:

    We are working with bill of material and we can’t make the system to affect inventory when we use sub items
    and we also we can not send a complete sale order to assemblies and after print the invoice

  15. Charlie says:

    Jose: I’m not clear as to what you are asking. When you say “sub items”, are you referring to subassemblies? Assembly items used as components? If so, QuickBooks lets you add assembly items as components, but it won’t automatically expand or build the sub assembly. You have to use an addon product like CCRQBOM (http://www.ccrsoftware.com/CCRQBOM/CCRQBOM.htm). If you mean something else, please clarify.

    I’m also not clear what you mean by “send a complete sale order to assemblies”…

  16. Tracey says:

    Charlie,
    What would you recommend as far as software that works with Quickbooks to track inventory and WIP? We assemble many sub-assemblies for the furnaces we build. I don’t think Quickbooks, by itself, is robust enough for our needs. What do you suggest?

    • Charlie says:

      Tracy, that is hard to answer. You can work with multiple level BOM’s in QuickBooks by using an add-on product my company produces, CCRQBOM (http://www.ccrsoftware.com/CCRQBOM/CCRQBOM.htm), but that doesn’t have anything specific to WIP. There are a number of addon products that manage inventory for QuickBooks by taking the inventory out to a separate file and process, but I don’t work with any of them so I don’t have a specific recommendation. You can look at ACCTivate, Fishbowl Inventory, ERP Lite and others that you would find in the Intuit Marketplace (http://marketplace.intuit.com/ ).

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