Terminology
Work-In-Progress (WIP) represents the value of goods still in production at the end of a period. Several terms are essential for understanding manufacturing accounting in this context:
- Cost of Goods Manufactured — the total costs associated with producing finished goods, including materials and labor.
- Stored Goods — items in stock that are ready for sale or further use in production.
- Production Costs — the costs incurred for raw materials, labor, and other expenses during various stages of the manufacturing process.
The Problem
Companies with long production cycles often face the challenge of accounting for partially produced goods. Without proper WIP tracking, all costs appear as operating expenses, which distorts the true financial picture. WIP functionality in Odoo 18 solves this problem by providing tools to accurately account for costs while production is still in progress.
Example
Consider a brewery process where raw materials go through multiple stages, including malting, mashing, lautering, boiling, and cooling. Each stage requires specific resources and time. Raw materials, such as malt, are already consumed, but the final product — beer — is not yet ready. Without WIP, all these costs might appear as current-period expenses, creating the false impression of high production costs. Using WIP in Odoo allows you to capitalize on expenses at each stage, enhancing financial accuracy.
Solution
To implement WIP tracking in Odoo, follow these steps:
- Using the Manufacturing Module: Odoo provides a Manufacturing module to manage production processes. You can set up each production stage in sequence to ensure accurate tracking.
- Setting Up Bill of Materials (BoM): Create Bills of Materials (BoMs) to define the consumption rates of raw materials and establish the chain of production operations. This ensures proper tracking of materials at each stage.
- Configuring WIP Account for Tracking: Set up the WIP account, where the cost of unfinished goods will be recorded. This is a crucial step to reflect WIP on the balance sheet.
- Add Employees Participating in Production: Include all employees involved in production and specify their hourly rates. This helps the system calculate labor costs accurately.
- Create Manufacturing Orders: In the Manufacturing module, create a new manufacturing order, selecting the BoM and setting the timeline.
- Start Operations: Begin each operation in sequence according to the defined production chain. Odoo tracks resource consumption at every stage.
- Automatic Accounting Entries in Odoo: Odoo generates accounting entries at each stage. Raw material and labor costs are recorded in the WIP account until the product is finished.
Process in Details
- Manufacturing Module: Use the standard module to plan and manage production processes. Setting up stages within the production process provides a structured approach to tracking, allowing visibility into all current operations and production stages.
- Bill of Materials (BoM): Define the consumption rates of raw materials in each BoM, including malt and other ingredients. The operation sequence (e.g., malting, mashing, etc.) establishes the chain through which raw materials flow until they become a finished product.
- WIP Account Configuration: Set up a WIP account in the accounting system. This account tracks unfinished goods and reflects them as assets on the balance sheet.
- Adding Employees: Add all employees involved in production to the system and specify their hourly rates. This step is essential for accurately accounting for labor costs at each stage.
- Creating Manufacturing Orders: Open the Manufacturing module and create a manufacturing order. Define the timeline and BoM to complete the description of the required production process.
- Starting Operations: Execute each stage step by step. Start with the initial operation, like malting, then proceed to subsequent operations as needed. Odoo tracks progress and costs at each stage, which reflects in financial reports.
- Automatic Accounting Entries: With each completed stage, Odoo generates accounting entries that track raw material and labor costs in the WIP account. These entries automatically carry over to accounting, providing accurate cost tracking.
Conclusion
By leveraging the WIP functionality in Odoo 18, manufacturing companies gain an essential tool for accurately tracking work-in-progress, preventing distortions in reports, and enhancing cost transparency. With proper configuration of the production sequence and accounts, companies can effectively plan production and reflect actual assets and expenses in financial statements.