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!