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Beginning WIP inventory is the WIP inventory figure from the previous accounting period. Production costs includes all costs associated with manufacturing a product, such as raw materials, labor, and overhead costs. Finished goods is the total value of goods ready for sale in the current accounting period.
The items identified in the Work breakdown structure plus overhead costs, plus costs related in proportion to the planning and performance.) According to the PMBOK (7th edition) by the Project Management Institute (PMI), Earned Value (EV) is defined as the "measure of work performed expressed in terms of the budget authorized for that work." [3]
Typical Lump Sum Contract Structure. A lump sum contract in construction is one type of construction contract, sometimes referred to as stipulated-sum, where a single price is quoted for an entire project based on plans and specifications and covers the entire project and the owner knows exactly how much the work will cost in advance. [1]
At the end of each week, the project manager identifies every detailed element of work that has been completed, and sums the EV for each of these completed elements. Earned value may be accumulated monthly, weekly, or as progress is made. The Value of Work Done (VOWD) is mainly used in Oil & Gas and is similar to the Actual Cost in EVM.
If the accountant is using a general ledger accounting system, which lacks true job costing functionality, the costs must be manually transferred out of Work in Process to Finished Goods (Cost of Goods Sold for service industries). Of course, in the days of computerized job costing software, journaling costs manually is an obsolete process.
Change orders are common to most projects, and very common with large projects. After the original scope (or contract) is formed, complete with the total price to be paid and the specific work to be completed, a client may decide that the original plans do not best represent his or her definition for the finished project.
Revenues and gross profit are recognized each period based on the construction progress, in other words, the percentage of completion. Construction costs plus gross profit earned to date are accumulated in an asset account (construction in process, also called construction in progress), and progress billings are accumulated in a liability account (billing on construction in process).
The concept of inventory, stock or work in process (or work in progress) has been extended from manufacturing systems to service businesses [1] [2] [3] and projects, [4] by generalizing the definition to be "all work within the process of production—all work that is or has occurred prior to the completion of production". In the context of a ...