What's the point of construction WIP?
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- čas přidán 26. 08. 2022
- What all the fuss is about calculating WIP for your construction financial statements.
Learn more from other videos on this channel and at www.thewipreport.com, including reconciling contract activity to the WIP schedule.
Thank you all!
what are the formulas in the over/underbillings column?
Thanks for the question!
Essentially, you divide cost to date by total estimated cost to calculate percent complete. Then you multiply that percent complete by the estimated gross profit. Then you add that amount to the cost to date to determine how much revenue you can recognize. If that latest calculation is more than your billings, you have an underbilling. If it's less than your billings, you have an overbilling.
Also, I would recommend downloading the template using the following link to see it. It should help you run through different scenarios to see how it comes together.
www.thewipreport.com/post/wip-template
Hope that helped!
Thanks again!
What happens with adding charge orders and estimated cost
Thank you for the question. It depends on how much costs you've incurred so far and how much the contract price and total estimated costs will change.
I recommend downloading the template using the following link and inputting the contract information associated with a specific job, and the billings and costs to date. Once you've done so, document the total over/under billing. Then, change the contract price and estimated costs associated with the change orders to calculate the new under/over billings. If overbillings decrease or underbillings increase, you'll be recognizing more revenue. If overbillings increase and underbillings decrease, you'll be recognizing less revenue.
www.thewipreport.com/post/wip-template
If you have any questions, please let me know and I can try to guide you through the process. Thank you!
Do you include retainage in your billed to date column? Thank you
Hello! Yes, retainage is included in the billed to date column.
hi, where do you normally put in commissions or referral amounts into this
Thanks for the question!
I'll follow up with the dreaded response, it depends. There are typically two schools of thought with this. One school suggests that only costs that reflect progress towards completion of the project should be included in the total estimated cost and cost incurred, which typically includes line items on your schedule of values (ex. mobilization, bonds, material, labor, subcontractor costs). Another suggests that all costs related to a project, both direct and indirect, should be allocated to cost incurred and total estimated costs. In this instance, commissions or referral amounts would be included in costs incurred and total estimated costs.
One of the main goals of the work in progress (WIP) report is to give users an idea of how the job is progressing and not necessarily if you're including all the costs such commissions and referrals. The over/underbilling is meant to give a glimpse of what to expect in the future. Your cash needs/obligations or expected cash inflows. I believe this is where the first school of thought (mentioned above) is coming from.
All that to say, if you wanted to keep track of commissions/referrals on jobs you would include it in costs incurred and total estimated costs. So in addition to labor, materials, subcontractor, etc., in your estimated total cost, you would include commissions/referrals so you don't skew your progress towards completion. Otherwise your cost incurred would make it appear that your closer to completion than you are since you're including commissions. Hope that helps! Thanks again for the question!