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WIP Transactions and Process

  • 23 February 2023
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We are using Apps 10.

We are currently reporting floor operations manually. We have highly skewed numbers that are tied to WIP. We continually have a negative balance in our labor expense account. The posting control is set to debit WIP and credit direct labor. Direct labor only is debited when we post payroll, but still remains at a credit balance in the millions.  What is the transaction to move WIP and all associated costs to finished goods? It doesn’t appear to be happening.

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Best answer by Thomas Peterson 1 March 2023, 22:56

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Hi, 

The M42 (labor posting) is to be seen as a cost recovery. Generally, I would never post this to the actual labor expense account. It is a contra account meaning the balance is generally (almost always a credit). That M42 does not clear unless you cancel labor and that’s not a normal, flow.  The idea is you compare actual labor - account X to labor applied (recovered) to get a value.   That value then designates if your over / under absorbing the labor.  Meaning is the labor time reported * standard rate too high or too low.  In a perfect world over time (few months) generally the difference should be small / acceptable.  If not, then you either have a time issue or a cost issue.  

Flow -- We have a STD cost of a part 100, where 25 is expected for Labor.   As we process a shop order labor and material cost go into M40 WIP.   The other side would be M1 for Material and M42 for labor. Other postings exist for overhead, machine / other but they all follow the same process.  As you complete the shop order and receive the goods to inventor the M40 WIP value is reduced based on STD cost value and moves to M1 inventory finished goods.   At shop order close because the WIP was reported (somewhat) at actual cost (time and material) and the M1 is based on STD cost, M40 may still have a value at shop order close, so variance postings are created.  Those can be seen as adjustments to cost.   But they never clear that M42 labor value. 

Sonds to me, like you have opportunities for improvements to posting control - keep the labor separate, and better management of the MFG variances.  But most importantly review the labor time and labor rates. The math does not tie out (unless your labor cost credit amount is small). 

Hope this helps, 

Best regards

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