Understanding WIP Methods
The calculation formulas for each Work in Process (WIP) method are defined in the following table. These are system defined.
| WIP method | Calculation formula | Calculation description |
|---|---|---|
Cost Value |
Recognized Revenue = Contract Invoiced Price Estimated Total Costs = Contract Total Price x Schedule Cost Ratio WIP Costs = (Percentage of Completion -Invoiced %) x Estimated Total Costs Percentage of Completion = Usage Total Costs/Schedule Total Costs Invoiced % = Contract Invoiced Price/Contract Total PriceRecognized Costs = Usage Total Costs - WIP |
Cost value calculations start by calculating the value of what has been provided by taking a proportion of the estimated total costs based on percentage of completion. Invoiced costs are subtracted by taking a proportion of the estimated total costs based on the invoiced percentage. This calculation requires that the Contract Total Price, Schedule Total Price, and Schedule Total Costs be correctly entered for the whole job. |
Cost of Sales |
Recognized Revenue = Contract Invoiced Price Recognized Costs = Schedule Total Cost x Invoiced Percentage Invoiced % = Contract Invoiced Price/Contract Total Price (Invoiced % exists as column in Job Task Lines) WIP Costs = Usage Total Costs – Recognized Costs |
Cost of Sales calculations begin by calculating the recognized costs. Costs are recognized proportionally based on Schedule Total Costs. This calculation requires that the Contract Total Price and Schedule Total Costs be correctly entered for the whole job. |
Sales Value |
Recognized Costs = Usage Total Costs Recognized Revenue = Usage Total Price x Expected invoicing ratio Cost Recovery % = Contract Total Price/Schedule Total Price WIP Sales = Recognized Sales - Contract Invoiced Price |
Sales value calculations recognize revenue proportionally based on Usage Total Costs and the expected cost recovery ratio. This calculation requires that the Contract Total Price and Schedule Total Price be correctly entered for the whole job. |
Percentage of Completion |
Recognized Costs = Usage Total Costs Recognized Revenue = Contract Total Price x Percentage of Completion Percentage of Completion = Usage Total Costs/Schedule Total Costs (Referred to as “Cost Completion %” in Job Task Lines) WIP Sales = Recognized Sales - Contract Invoiced Price |
Percentage of Completion calculations recognize revenue proportionally based on the percentage of completion, that is, Usage Total Costs vs. Schedule Costs. This calculation requires that the Contract Total Price and Schedule Total Costs be correctly entered for the whole job. |
Completed Contract |
WIP Amount = WIP Cost Amount = Usage (Total Cost) WIP Sales Amount = Contract (Invoiced Price) |
Completed Contract does not recognize revenue and costs until the job is complete. You may want to do this when there is high uncertainty around the estimates of costs and revenue for the job. All usage is posted to the WIP Costs Account (asset) and all invoiced sales are posted to the WIP Invoiced Sales Account (liability) until the job is complete. |
See Also
Tasks
How to: Create a WIP Method
How to: Post Work in Process and Recognition