Accounting Best Practices, Fifth Edition

9–8. Eliminate the Tracking of Work-in-Process Inventory

One of the most complex and error-ridden tasks for the cost accountant is the tracking and accumulation of costs for work-in-process (WIP) inventory. Because inventory can pass through many workstations, picking up machining and labor costs as it progresses through the production facility, there can be a multitude of transactions to accumulate and charge to inventory. Also, because inventory-tracking systems are typically at their worst in the production area (as opposed to the controlled environment in the warehouse), it is common to see inventory records disappear. Materials themselves can also disappear, since scrap can occur throughout the production process. The end result is a labor-intensive accounting mess that frequently yields inaccurate costing results.

The solution requires the conversion of the production process to cellular manufacturing and the elimination of WIP queues in the production area. Once this has been accomplished, WIP levels will have been driven so low that there is no point in tracking WIP at all. Instead, the cost accounting staff will continue to record items as being in raw materials inventory until they are assembled into final products, after which they are transferred directly into the finished goods inventory.

The problem is certainly not with the elimination of WIP inventory—the cost accounting staff will adopt this practice with enthusiasm. The issue is the massive alteration in production ...