I work for a company that manufactures a range of products and would appreciate any tips / guidance / pointers to relevant text with a view to establishing procedures for calculating WIP.
I will revise SSAP 9, but it is the actual practical aspects (ie. how to quantify / value materials, reasonable methods for allocating labour and overheads etc.)
Any help would be much appreciated.
Brian
Replies (3)
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Quick and dirty option
If the wip balance is not large then one option will be a standard cost - work out what the cost of a unit is (giving allocation of overheads on a per labour hour basis) and then count wip - give it say a just started (materials only in wip), or % done (apply %labour and overheads).
NOTE This will probably not get past auditors if the balance is material. It is only a quick and dirty option (could be used for mgmt accounts if desired)
In the long run a stock costing system should be found which can apply raw materials cost and a timesheet system to apply labour hours is the most effective way and will enable the identification of jobs which are overrunning. (Overheads can be applied at a standard rate for mgmt a/c and then adjusted at the year end).
Huge task!
Sorry to be down on you but you might as well have asked 'How does cost accounting work?'
The WIP value should come from the job or process costing records for the company. If you are trying to do this on the basis of a visual inspection/physical count then this is a process akin to quantity surveying. SSAP 9 isn't goin to help you much, as you have found.