Interesting to think about how the inventory tracking process probably updated after the massive production capabilities created during the industrial revolution. Super cool!
If labour cost is also included in Work in progress inventory, then how do companies calculate how much labor cost ( & other costs) is required to manufacture that product which is still in the process of production? Because if we consider finished good inventory it is easier to calculate the total labor and other costs which was required to manufacture that product, because the product is already produced, But in case of Work In Progress the product is in the process of manufacturing.
Only “direct” labour costs are included in WIP. This is everything that is physically involved in producing the product (so manpower directly involved in turning the machinery, physically sticking objects together etc). You should look at the WIP section of a company’s inventory as the “direct” costs account because only direct materials or labour will be included in there. Calculating labour costs becomes easier only if you’re able to narrow down where they are coming from, which is why management accountants separate WIP from “Manufacturing Overhead” which can be viewed as your “indirect product costs” account. These costs include indirect labour and materials involved in production. It’s actually much more difficult to trace costs if we only have a finished goods inventory account available to view because this account will not separate indirect and direct labour or material costs. It is simply the total dollar amount spent, direct and indirectly, in producing the finished product.
Raw materials (e.g., lumber) first become work-in-process inventory (e.g., a partially-constructed house) and then eventually become a finished product (a fully-constructed house). If a company has no partially-completed inventory (e.g., it only has lumber and fully-constructed houses) then work-in-process inventory would be zero
It’s not realistic for manufacturing companies to not have a WIP. In fact, all of them would love it if the materials could instantly be turned into finished goods ready for sale but that simply not true (and never will be). WIP allows production managers in a manufacturing firm to clearly see the amount spent on direct costs at a certain point in time since information is required consistently to make key decisions.
I'm in cost accounting right now and I finally get it! Thank you for explaining this real well!
Did you complete your Cost accounting.. I am planning to do CMA how it would be.
I'm really amazed by your way of teaching here in yt! You are very good and explained it well in detail is such a short time.
Thank you very much!!!
Like your teaching style.
Interesting to think about how the inventory tracking process probably updated after the massive production capabilities created during the industrial revolution. Super cool!
Accounting is so hard.
the GOAT
4:55 how did you calculate cost of inventory is completed technically?
If labour cost is also included in Work in progress inventory, then how do companies calculate how much labor cost ( & other costs) is required to manufacture that product which is still in the process of production? Because if we consider finished good inventory it is easier to calculate the total labor and other costs which was required to manufacture that product, because the product is already produced, But in case of Work In Progress the product is in the process of manufacturing.
Only “direct” labour costs are included in WIP. This is everything that is physically involved in producing the product (so manpower directly involved in turning the machinery, physically sticking objects together etc). You should look at the WIP section of a company’s inventory as the “direct” costs account because only direct materials or labour will be included in there. Calculating labour costs becomes easier only if you’re able to narrow down where they are coming from, which is why management accountants separate WIP from “Manufacturing Overhead” which can be viewed as your “indirect product costs” account. These costs include indirect labour and materials involved in production.
It’s actually much more difficult to trace costs if we only have a finished goods inventory account available to view because this account will not separate indirect and direct labour or material costs. It is simply the total dollar amount spent, direct and indirectly, in producing the finished product.
Thank you Sir!
Great
thank u sir nicely explained !!!
Does a business have to have wip? What if you take raw materials and turn it into a finished product.
Raw materials (e.g., lumber) first become work-in-process inventory (e.g., a partially-constructed house) and then eventually become a finished product (a fully-constructed house). If a company has no partially-completed inventory (e.g., it only has lumber and fully-constructed houses) then work-in-process inventory would be zero
@@Edspira how would you find COGM with 0 wip then?
It’s not realistic for manufacturing companies to not have a WIP. In fact, all of them would love it if the materials could instantly be turned into finished goods ready for sale but that simply not true (and never will be). WIP allows production managers in a manufacturing firm to clearly see the amount spent on direct costs at a certain point in time since information is required consistently to make key decisions.
thank you!!!
I don't know, in 4:31Why employees do work that can input work-in-process inventory. It is direct labour.
direct labor belongs to inventoriable costs
Work on white background please
Nah
light mode is for the weak and guildless