Core Concepts
Understanding core manufacturing concepts is essential before building Bills of Materials (BOM) or releasing production work orders. These concepts explain how raw materials transform into finished goods and how shop floor operations absorb labor and machine overhead costs.
The Production Order Lifecycle
Manufacturing execution follows a structured 5-step lifecycle. Each step represents a physical shop floor milestone and financial ledger re-allocation.
| Step | Milestone | Business Purpose | Applet Used |
|---|---|---|---|
| 1 | BOM & Process Design | Defining multi-level raw material recipes, work center operations, and machine cycle times | Process Maintenance Applet |
| 2 | Production Order Creation | Scheduling master work orders, reserving raw material components, and issuing batch numbers | Production Planning and Monitoring Applet |
| 3 | Material Issue to WIP | Releasing raw materials from warehouse to factory floor; transferring value to WIP asset | Manufacturing Operation Applet |
| 4 | Shop Floor Operations | Executing work center operations, logging machine hours, direct labor, and packing secondary goods | Manufacturing Operation Applet / Internal Packing Order Applet |
| 5 | Finished Goods Receiving | Transferring completed product units to warehouse; clearing WIP and posting finished inventory asset | Internal Packing Order Applet |
Work-in-Progress (WIP) Cost Absorption Mechanics
BigLedger calculates the final standard or actual cost of manufactured inventory through real-time WIP absorption:
┌────────────────────────────────┐
│ Raw Material Component Cost │
└───────────────┬────────────────┘
│
├───> ┌────────────────────────────────┐ ┌────────────────────────────────┐
│ │ Work-in-Progress (WIP) GL │────>│ Finished Goods Inventory Asset │
├───> └────────────────────────────────┘ └────────────────────────────────┘
│
┌───────────────┴────────────────┐
│ Direct Labor & Overhead Cost │
└────────────────────────────────┘- Material Costs: Added to WIP when raw materials are physically issued from warehouse to factory floor.
- Conversion Costs: Direct labor hours and machine operating overhead are absorbed into WIP as work centers record operational progress.
- Finished Valuation: Total accumulated WIP costs are transferred to the Finished Goods Asset account upon work order completion.
What to Read Next
- Configuration — Set up work centers, process routings, and Bill of Materials (BOM) recipes.
- Use Cases — Review reference architectures for discrete assembly, process batch manufacturing, and packing operations.