Work in Process (WIP) 

Use

Whenever materials are used for orders or production activities are confirmed, work in process is posted in Inventory Accounting using the following logic:

Since work in process is updated directly with all consumptions for production orders or process orders, only one periodic run is required to correct and adjust the WIP inventory.

Features

You can use the MM transaction MIGO to enter the consumption of materials in the production process (goods issue for order) in two units of measure (piece and kilogram). This means that the amount in the valuation unit of measure is used for updating work in process in Inventory Accounting.

Internal activities are allocated upon confirmation.

Overhead can be allocated based on quantities or as a percentage of the direct costs. Furthermore, when overhead is posted, the WIP inventory is debited and the cost center is credited (primary posting since it is relevant to the inventory). Actual overhead costs are calculated in each period.

When goods receipts (GR) from production are posted, work-in-process inventory is credited and the warehouse inventory is debited. This posting is always based on the GR quantity in the valuation unit and is valuated with the standard price of the material being manufactured.

A breakdown of the balance sheet items in the WIP account enables you to analyze the inventory change in detail.

Goods Receipts for By-Products

By-products are entered in the BOM as material items with a negative quantity. The prices for by-products can be calculated in cost estimates. Goods receipts for by-products also result in a reposting of WIP to warehouse stock. This posting is valuated with the fixed price of the by-product.

Example

Comparison of Posting Methods

Posting	Inventory Accounting is not active	Inventory Accounting is active
Material consumption for manufacturing order 50 kg Material A (standard price = 10 per kg)	Primary posting: Debit Material Costs 500 Credit Inventory 500	Primary posting: Debit Work in Process 500 Credit Inventory 500
Activity confirmation for manufacturing order 5 hrs Activity type A, Cost center A (10 per hour)	Secondary posting: Activity allocation - Debit Production Order 50 - Credit Cost Center 50	Primary posting: Debit Work in Process 50 Credit Allocated Activities 50 (the cost center is credited)