Understanding WIP Methods in Project Management
As a project progresses, materials, resources, and other expenses are consumed and must be posted to the project. Work in Process (WIP) is a feature that enables you to estimate the financial value of projects in the general ledger while the projects are ongoing. In many cases, you might post expenses for a project before invoicing a project. When only expenses have been posted, your financial statement will be inaccurate.
To track the value in the general ledger, you can calculate WIP and post the value to the general ledger. For more information, see Monitor Project Progress and Performance.
Business Central supports the following methods of calculating and recording the value of work in process.
| WIP Method | Calculation Formula | Calculation Description |
|---|---|---|
| Cost Value | Recognized Revenue = Billable Invoiced Price Budget Cost Ratio = Budget Total Costs / Budget Total Price Estimated Total Costs = Billable Total Price x Budget Cost Ratio Percentage of Completion = Usage Total Costs / Budget Total Costs Invoiced % = Billable Invoiced Price / Billable Total Price WIP Cost = (Percentage of Completion - Invoiced %) x Estimated Total Costs Recognized Costs = Usage Total Costs - WIP Cost |
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 billable total price, budget total price, and budget total costs be correctly entered for the whole project. |
| Cost of Sales | Recognized Revenue = Billable Invoiced Price Recognized Costs = Budget Total Cost x Invoiced Percentage Invoiced % = Billable Invoiced Price / Billable Total Price (Invoiced % exists as a column on project 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 budget total costs. This calculation requires that the billable total price and budget total costs be correctly entered for the whole project. |
| Sales Value | Recognized Costs = Usage Total Costs Recognized Revenue = Usage Total Price x Expected invoicing ratio Cost Recovery % = Billable Total Price / Budget Total Price WIP Sales = Recognized Sales - Billable Invoiced Price |
Sales value calculations recognize revenue proportionally based on usage total costs and the expected cost recovery ratio. This calculation requires that the billable total price and budget total price be correctly entered for the whole project. |
| Percentage of Completion | Recognized Costs = Usage Total Costs Recognized Revenue = Billable Total Price x Percentage of Completion Percentage of Completion = Usage Total Costs / Budget Total Costs (Captured in the Cost Completion % field on project task lines) WIP Sales = Recognized Sales - Billable Invoiced Price |
Percentage of completion calculations recognize revenue proportionally based on the percentage of completion, that is, usage total costs vs. budget costs. This calculation requires that the billable total price and budget total costs be correctly entered for the whole project. |
| Completed Contract | WIP Amount = WIP Cost Amount = Usage (Total Cost) WIP Sales Amount = Billable (Invoiced Price) |
Completed contract does not recognize revenue and costs until the project is complete. You may want to do this when there is high uncertainty around the estimates of costs and revenue for the project. 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 project is complete. |
See also
Project Management
Finance
Purchasing
Sales
Work with Business Central
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