How would you value WIP Inventory at the end of the month? Would you include labor?

Question

I've been in accounting many years, but am new to manufacturing so I'm confused on something. If you have 1,000 widgets on hand at the end of the month and they are 50% complete, what value do you put on them? Say there is already $2,000 in parts and it costs $3,000 labor to fully produce them. Do you add $2,000 + $1,500 (50% of the labor) for a total of $3,500? My problem with that is I have already recorded the labor when I recorded payroll, so then it's on my books twice.

Should I debit the asset WIP and credit payroll as a reversing entry, for the labor part? And debit WIP and credit parts expense (for the parts it took to create the widgets) as a reversing entry?

Thanks for any help. Do you know where I can find info on this? My accounting books are long since packed away and very old.

Answer 1

WIP would include raw materials, direct labor and factory overhead,

Answer 2

Use the KISS principle....keep it simple stupid.  You would debit the WIP as an asset at the value of the widgets.  So if the widgets were worth $10000.00 you would value the wip as $5000.00.  Your labor and everything else would be an expense that is already on the books so you would not want to use it as a reversing entry.  You will reverse this entry next month while adding your new wip for your whatnots that you are doing.

Answer 3

Yes, labour is part of WIP. Try these cost accounting lectures.