Microsoft Dynamics AX (Archived)

Production with WIP amount.

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Posted on by Cam Phung

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Hi All,

My customer use repetitive manufacturing and they have work in progress (WIP) end of month.

They calculate Finish good (FG) cost end of month, so I have to end batch order.

However, total expense issue will allocate to FG in next month, so I can not end batch order.

Question: Do you know how system transfer WIP (value) to a batch order in next month. Or do you propose me any solution in this case?

Thank you.

Phung Luong.

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Ludwig Reinhard Microsoft Employee on at

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Hello Phung Luong,

I do not fully understand your question.

If your production order is not finished at the end of the month and an amount is sitting in your WIP account why would you need to end the production order?

From an accounting perspective the WIP account and the FG account are both balance sheet accounts reported closely to each other in the company's balance sheet and from an overall perspective it does not make a difference if the amount is sitting on the WIP of FG account. The only Situation where it would make a significant difference is when you have huge production variances in the form of additional item/hour consumption and alike.

Would be great if you could provide some additional information why you want to get those orders closed.

Many thanks,

Ludwig

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Cam Phung 997 on at

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Hello Ludwig Reinhard,

Thank you for your reply.

I use costing method weight avg., all inventory transaction record with average cost and that cost will be incorrect at the end of month. I have to end all production order to recalculate raw material cost and update actual cost for FG. And then, update correct COGS.

If I do not end production order, COGS in P&L and Inventory in BS will be incorrect.

Thank you

Cam Phung

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Ludwig Reinhard Microsoft Employee on at

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Hello Phung Luong,

I think the term "incorrect" does not express it correctly. I would probably consider it as shifted to a differt period. Yet, I still cannot see a major issue as long as you do not have large production variances and your planned and realized production costs do not differ considerably.

Let's make an example, imagine that you cannot finish a production order by the end of the months 07-2016. At month end 07-2016 you thus see the planned costs sitting on your WIP account. If you end the production order in 08-2016 you will see the realized costs. Let's assume the that there is a difference between the realized and estimated costs of 10$. This means that your costs in 07-2016 were wrong by 10$. Let's continue by assuming that at the end of the month 08-2016 you cannot finish another production order that can only be finished in 09-2016. In 09-2016 you will see a difference between planned and realized costs of 9$. Given that your income Statement in 08-2016 would have been wrong by 1$ (10$ that belong to the 07-2016 and 9$ that actually belong to 08-2016 but that are recorded in 09-2016).

What I want to say by illustrating that is as long as your production cycles - the time production orders run - and as long as the difference between your actual and planned costs do not fluctuate much, artificially closing production orders will not make things better but only make your life busy.

I would suggest that you discuss this with your finance colleagues and the company's auditors as I cannot see a material misstatement of your company's P&L and BS by not forcing all production orders to get closed at the end of the month if they are actually not finished.

Would be very much interested what is their view on this topic and very happy if you could keep us updated here.

Many thanks and best regards,

Ludwig

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Cam Phung 997 on at

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Hello Ludwig,

That's a good example that make me realize I make my life busy :)

There are some reasons that make me want to end production order.

Manufacturing cost : All expense generate from production order I call "Standard" and will be record in a GL account (e.g Dr WIP/Cr Manufacturing cost), I mean I give a "standard manufacturing cost" at the cost categories.

At the end of month, Accountant will be record "actual manufacturing cost" (labor cost, depreciation, maintenance cost...) in a GL account (Dr Manufacturing cost/Cr Cash, Depreciation expense, payable to employee...).

I try to allocate actual manufacturing cost to FG and clear Manufacturing GL account, so I use adjustment function to allocate variance between "Standard" and "Actual" manufacturing cost. To do that, I think I have to end production to allocate.

Remember that, I use weight avg.

I will give you an example.

I plan I will produce

Item A: 100kg

Item B: 200kg

I issue raw material for produce according plan.

However at the end of month, I receive

Item A: 90kg

Item B: 150kg.

I want to allocate actual manufacturing cost to FG item to clear manufacturing GL account.

The remainder of material in shop floor will be join in to create FG in next month.

How do you do if you see that case?

Thank you.

Phung Luong

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Cam Phung 997 on at

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Additionally, when I RAF, system always use route consumption value to record transaction and ignore raw material cost.

Or if I try to check "use estimated cost price" in production control parameter, system will use estimate cost price to record transaction and ignore actual raw material that I issues E.g 1FG = 2RM, RM = 1$ -> estimated cost FG = 2$

Issue raw material 1RM: Dr Picking list offset acc (RM) / Cr picking list issue (RM) = 1$

RAF 1FG: Dr Report as finished receipt (FG)/ Cr Reported as finished offset account (FG) = 2$

I always setup Reported as finished offset account (FG) = Dr Picking list offset acc (RM)

You can see 2 account does not balance.

If I end that production order. System will reverse all transaction and record new transaction.

If I do not end production order, I can not control it.

P/s: I use another software and It support repetitive manufacturing. At the end of month, It support us to close production to calculate cost of FG and transfer WIP to new production order in next month. 1 item have only 1 production in 1 month.

Thank you.

Phung Luong

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Ludwig Reinhard Microsoft Employee on at

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Hi Phung Luong,

I believe that I can only give you some hints from my perspective but you need to discuss this treatmeant and accounting procedure with your accounting managers / superiors.

Ok, let's have a look at your first comment about the manufacturing costs:

You first CR the manufacturing cost account with your "standard cost" and then your accountant DR the account with the actual costs. Well, in this case I would say that there will always a difference remaining on this account. Only theoretically this account will be able to get cleared exactly.

But why is this an issue that requires you making an adjustment?

Lets say your "standard costs" are 100$ and your actual costs 105$.

The 5$ difference represent a kind of "waste" that your accountants should be interested in - at least I would be interested in :-)

You said that you use weighted average costing. Wouldn't the inventory recalculation/closing process pick up and account for this difference and give you a correct inventory valuation requiring you to reverse a part or all of your adjustment recorded?

Another side question from an acounting perspective:

Your accountants DR depreciation expense, Labor costs and so on as usual. Those costs are not directly related to production orders but rather need to be "allocated" through the means of the production posting setup. Your production posting will end up in something like DR "finished product" and CR "allocation accounts". What will be allocated depends on your item cost Prices, route cost Prices, etc. but it will never be identical to your actual costs that your accountants record. What I want to ask isn't this just a missconception of your colleagues that the account that you manually clear needs to be 0? I think as long as your company is "alive" and as long as the Balance of this account does not consistently increase or decrease, I might not want to do anything manually?!

Would be great if you could discuss this internally and let us know what was decided. Yet, if I were you I would try getting rid of the adjustment Job as it does not add any value in my opinion but just keeps People busy.

Hope this helps,

Ludwig

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ThuNgo 978 on at

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Hi,

Did you find a solution for this scenario?

Thanks,

Best regards,

Thu

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