Manufacturing WIP in QuickBooks
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!
Related posts:
- QuickBooks Manufacturing Tutorial
- QuickBooks Manufacturing Bill of Materials
- QuickBooks Groups for Custom Manufacturers
- Tracking QuickBooks BOM Revisions
- Groups vs Assemblies in QuickBooks
Category: Manufacturing and Inventory, Working with QuickBooks
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, and remembers releasing his first commercial accounting software product when you had a one-floppy disk drive system, loading the program from one floppy and then replacing that with the other floppy to hold the data. He has a special interest in inventory and manufacturing software for small businesses. Charlie is a Certified Advanced QuickBooks ProAdvisor and participates extensively in the QuickBooks Community user forums under the ID of CCRussell. Visit his CCRSoftware web site for information about his QuickBooks add-on products. Charlie can be reached at charlie.russell@sleeter.com
He is also the author of the California Wildflower Hikes blog and a regular blog contributor to the Intuit Inner Circle.
Connect with Charlie at Google
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Thanks so much for your informative articles. I work with a small company that not only builds several types of custom items, it also sells the basic component items and the various assemblies at different price structures, some with owned components and some with leased equipment that needs to be returned – think returnable bottles. The basic component(s) are also significant WIP items. We also sell items wholesale and retail, as well as items purchased from vendors and passed through.
We are now moving from departmental spreadsheets to an integrated use of Quickbooks and I’m hoping that with some of these tips, we’ll be able to manage the processes without spending $$$$, but we’ll see.
Glad you like the article, Jayne – and as you can see, there are others relating directly to manufacturing in the blog. There will be more to come in the future, and I’m always interested in hearing about what specific things people are looking for info about, so that I can expand upon that in the future…
Thanks for your article maybe you can assist us with some advice. We are a manufacturing concern, our problem is tracking sales orders and inventory.
Some items we make up for specific Customer orders and others for stock. The managing of the orders for Customers is working fine, however how do we manage the orders that we take into stock?(to build our inventory up) We currently create a sales order made out to a customer we have called “Stock”, the problem we now have is that we don’t invoice this stock out which would clear the sales order. What we need to be able to do is adjust the quantity we have on hand once we have made it and then offset the amount that we have made against the sales order so that it clears the amounts “ordered” off the system, however I don’t know how to do this, any suggestions will help.
James: Why are you entering the sales order for items made to stock? There are many different reasons for doing this – but for different purposes. So, what is the goal, why are you entering these particular sales orders?
Hi Charlie thanks for the reply, we are using QODBC to pull all the sales orders from Quickbooks into Excel, from excel we are filtering the orders/items and basing our production schedule from this information. I hope this is clearer. I am not sure how else to go about doing processing the stock items we need to manufacture.
That wasn’t really the question, but it opens up other things. My question is – why a sales order to begin with? If someone buys something, you have a sales order. You eventually (hopefully) turn that sales order into an invoice. But, you are entering sales orders for situations where you aren’t selling things. Why those? Is it so that you can see a combined demand for the items, from stock and per order?
If the sales order is just to put demand into the system, that you are pulling from via ODBC – hard to say what you are keying on without more info – how about just deleting those sales orders after you build the items?
And, if you are using ODBC to pull items out of sales orders to generate production info – you might look at CCRQBOM. Note that this is a product that I have written and sell. It pulls the inventory assembly items out of sales orders AND generates a “requirements list” that shows you the components you need to build those items. http://www.ccrsoftware.com
Would it be easier to use QuickBooks Point of Sale to keep track of inventory and WIP?
Valerie – I’m not a POS expert, so I can’t say. I’m not sure why it would be any better in this particular case, but perhaps someone else can comment on that.
Charlie’s questions sound similar to ours – I work for a client that does not manufacture work for specific customers, but only to restock inventory to then sell. We are using QB manufacturing premier version. We have a detailed assembly inventory system set up and that is working fine.
Our needs currently are these – 1) to create some kind of Work Order system – we desire to issue a work order with a job no. to deliver to the shop staff to ask them to build an assembly. We hope the work order will accomplish several things – issue a specific task, list BOM, assign a job # to a build process so staff can track their hours for each build to determine labor required to make the product, and finally to create a system so we know what projects are in process in the shop. So, we need the work order itself, but also a way to track work orders in progress.
The Second thing we are needing is a way to track hours worked efficiently on each job so we can accurately calculate labor costs for each product built. I was thinking of creating a fake customer and using jobs for the fake customer to track hours when I enter payroll (I used time tracking for payroll calculations).
Feels like I am asking a lot – guess we are really trying to get things figured out – any ideas?
Thank you so much for your input,
Tammy
Tammy, from what you say, my thought is that your options are to either use the “job costing” feature in QuickBooks, or to look at one of several manufacturing add-on products that might provide what you need. Depending on the type of items you are building. I’m going to guess that you aren’t building very large, very low volume items, so the “job costing” feature in QuickBooks probably isn’t going to work for you (but I could be wrong). That leaves you with looking at addon products.
There are several, but I don’t have a recommendation at this time as I’ve not worked with any of them in this particular kind of situation.
You may want to find a local advisor who can work with you on this – try the “Find a Sleeter-Certified Consultant” box that is at the top of the right hand column.
I have two clients, a medical laboratory and a construction of housing projects
Both are cost accounting
In the construction costs for projects must be wearing a clear bills of materials, labor and overhead work
The laboratory production is based on formulas for each of the products to be manufactured
I have recommended Interprise Software Solution
I need your help to parameterize the Item of both projects so that costs can be accumulated for each particular item and then get a finished product of CAD Item no need to do in excel
Georgina, that goes beyond what I can provide to you through blog comments. Note that construction cost accounting is very different than WIP in manufacturing. I recommend that you work with a qualified ProAdvisor who understands construction cost accounting, as well as manufacturing.
Hello, great article. This would work perfect for my company: I want to build intermdeiate WIP assemblies in order to “reserve” raw materials for a certain assembly while it is in progress. My problem is that if I do not have all of the individual items in stock, Quickbooks will not let me post the build assembly (marks as pending) therefore does not deduct (“reserve”) items in the assembly. Any suggestions would be much appreciated.
Thanks, Jack. Yes, to build an assembly, QuickBooks requires that any inventory part or inventory assembly components actually be in stock at the time of the build. Getting around that can be tough.
Some general ideas that might or might not work in your situation – and some of them may be ugly (but you have to do what you have to do to get around this limitation!):
-If there is one particular part that you never have in stock, that always is “late” to arrive, that isn’t a part of your actual in progress work. So, take that out of the lower level WIP assembly and add it to the BOM for the finished item assembly.
-Create multiple levels of assemblies, some that pull parts now and some that pull parts later, so you can move your product through different stages of assembly as the parts are available.
-Consider using the “available quantity” feature, which I describe in another article at http://www.sleeter.com/blog/2012/03/quickbooks-available-inventory/. In this way, if your assembly is marked as “pending”, the components that you need for that assembly show up as not “available”. This is the approach that doesn’t require any modifications of your BOM, but it relies on your staff to pay attention to the concept of “available inventory”.