Accounting entry - WIP, Variance Calculation & Settlement of Production Orders

[former_member221103]

Hi All,

Please explain the process of WIP calculation, variance and settlement of production orders. At each stage will there be an accounting entry generated?

1. WIP calculation: All production orders for which the status is REL at the month end will be included in WIP calculation. How the amount of WIP is derived and what will be the accounting entry.

2. Variance calculation: Production order needs to have the status TECHO in order to do the variance settlement. Will there be an accounting action and how the amount will be calculated?

3. Settlement of Production Orders: Dr. WIP A/c (Balance Sheet a/c)

                                                    Cr. Volume Variance WIP a/c (P&L Account)

    Is this the correct accounting entry? If yes, please advice how the WIP a/c is showing balance on settlement of production order, how it will get nullified? If no, please advise on the correct process?

Regards

[Muhammad-Humayun-FICO]

Dear All,

1st of all, we should understand the concept of cost by order which will make our understanding of WIP easy. In product cost by order, we can calculate either WIP or Variance as we can't calculate both. It depends on the status of the order; if the status of an order is REL, only then WIP can be calculated. Accounting entry is also generated which is :

WIP A/c(bal.sheet)Dr. and change in WIP A/c(P&L) Cr.

Note#1: as all these activities are done at the month end and if the status of an order gets changed to Delivered or TECO, then only variances can be calculated and then settled.

Variance entry:

COGM Dr/Cr.

Variance A/C Dr./Cr.

Note#2. Hence, WIP or Variance totally depends on the status of an order unlike product cost by period in which we can have both WIP and variance in product cost collector.