WIP-based product costing is used to calculate work center hourly rates for labor and manufacturing overhead. These rates get applied to standard and actual job labor hours to calculate job costs for labor and overhead. Those job costs, along with material and subcontract service costs, are absorbed into the inventory cost of finished items to provide accurate inventory value and cost of goods sold.
Product Costing Guide »
What does WIP-based product costing do for you?
Product costing in DBA is WIP-based, which means that costs are derived from work in process transactions. WIP-based product costing provides the following features and benefits:
- Estimated item costs are broken out into four major cost elements - material, labor, subcontract services, and manufacturing overhead - so that you have an accurate cost profile for making pricing decisions
- Labor, subcontract service, and manufacturing overhead costs are absorbed into the inventory cost of the items you make so that you get an accurate cost of goods sold at the item level
- Components are deducted from inventory in real time when they are issued to jobs so that on hand inventory is always accurate and cleanly separated from materials in WIP
- Stock counts can be freely performed without any consideration of materials in WIP
- WIP and inventory accounts are self-adjusting and require no period end adjustments
Our design is optimized for small business
We've designed our product costing system so that it can be successfully used by companies of any size, especially small businesses, for these reasons:
- Product costing occurs as processes are performed and requires none of the maintenance and adjustments required to adapt a non-WIP system to a manufacturing business
- Hourly shop rates for direct labor and manufacturing overhead are automatically calculated based on historical job hours and actual costs
- Absorbed costing occurs automatically as job processes are performed