The Manufacturing Cycle in Wafeq: From Raw Materials to Finished Item

You purchase a wooden board, screws, and legs, and a chair comes out of your factory. But between the two, there is a process that your accounting system needs to track in detail: which component was issued from the warehouse, how much it actually cost, where labor costs went, at what value the chair entered your inventory, and whether its actual cost was higher or lower than expected.

Manufacturing is not simply one inventory movement that issues components and adds the finished item. It is a series of documents, each moving value from one place to another and recording, at every stage, what you planned and what actually happened.
 

This guide is a map of that entire cycle: what its documents are, the order in which they occur, what happens to your inventory and accounting records at each step, and where to find the full details for each topic.

Manufacturing Cycle 

The manufacturing cycle in Wafeq is based on four documents, each with a distinct role:

1. Bill of Materials (BOM) is the recipe. It defines the components, quantities, and operating costs required to produce one unit of an item. It is a reference, not an execution document, it does not create accounting entries or inventory movements, and all its figures are standard expected values.
2. Production Order is the execution stage. It issues components from your warehouse, posts the related accounting entries, and measures their actual cost against the standard cost.
3. Completion is the receiving stage. Each time a batch comes out of the production line, you record a completion so the assembly item enters your inventory at its value, with its share of operating costs capitalized into it.

4. Disassembly Order is the reverse process. It converts an assembly item back into its components in inventory.

    

The Manufacturing Cycle Step by Step

This is the practical sequence, from an item that has not yet been created to a finished item that is sold:

1. Prepare the components in inventory. Add each raw material as an inventory item and purchase it through purchase invoices so that it has an actual cost and an inventory balance. The system does not allow you to release a production order with a component whose actual cost is zero, so this step is required before proceeding.

2. Create the assembly item and its Bill of Materials. Set the item type to Assembly, then configure its recipe: components, quantities, yield percentages, standard costs, labor costs, and overhead per unit.

3. Set up the manufacturing accounts once. Before creating your first production order, define the accounts that Wafeq will use to post manufacturing transactions and specify how the system should behave when a component is insufficient.

4. Create the Production Order. Select the assembly item, quantity, warehouse, and production type. Wafeq calculates the material requirements based on the BOM and displays the expected cost of the order. The order remains Planned and does not affect anything until it is released.

5. Plan purchases if your inventory balance is insufficient. If you do not have enough components, the Production Order alerts you and allows you to plan the required purchases. It calculates what you need, suggests suppliers and prices, and converts approved requirements into purchase orders.

6. Release the Production Order. This is where the actual execution begins: the components are issued to the work-in-process account, their quantities and costs and the BOM revision are locked on the order, and the first accounting entry is created.

7. Record completions. Each time a batch comes out of production, record a completion so that the assembly item enters your inventory and becomes available for sale. The order changes to In progress after the first completion and to Completed once the full planned quantity has been produced.

8. Close the order short if production stops. If production stops before reaching the planned quantity, the system scales the standard quantities and costs down to match what was actually produced and returns any unconsumed components to your inventory.

9. Review the results. Compare your actual costs with what you planned and analyze the variances to identify their source: component prices, consumption quantities, or operating costs.

One Irreversible Decision: Production Type

When creating a Production Order, you select its production type, and you cannot change it afterward. The difference between the two types is not only about speed; it also determines how costs are tracked.

• Instant (produce now): One inventory movement takes place — the components are issued and the assembly item is added to inventory at the same time. The order immediately becomes Completed. It does not require an intermediate account, does not support recording completions in batches, and cannot be closed short, because the entire planned quantity is produced in one step.
• Through work-in-process: Designed for production that takes place over a period of time. The components are issued when the order is released and held in an intermediate account. Units produced are then recorded in batches, and each completion transfers its share from the intermediate account to inventory.

Choose Instant for production that is completed in a single session and does not require cost tracking during production. Choose Through work-in-process when production takes several days, is completed in batches, or when you need to see the value of your work in process on your balance sheet.

The Journey of Component Value

Looking at the cycle from an accounting perspective helps explain why manufacturing costs do not appear as expenses in the income statement when you manufacture, but when you sell.

The component's value passes through four stages: it starts in component inventory when you purchase it, moves to the work-in-process account when the order is released, moves to assembly item inventory when a completion is recorded, and finally moves to cost of goods sold when the item is sold.

Labor and overhead are also added to the value along the way. They are not recorded as expenses when manufacturing takes place; instead, they are capitalized as part of the item's inventory value. For example, a chair whose components cost SAR 48 and whose operating costs are SAR 25 enters inventory at SAR 73, and the full SAR 73 moves to cost of goods sold when the chair is sold.

This also means that manufacturing labor costs you have paid but that have not yet been absorbed by production remain in their account. A remaining balance is therefore a useful indicator, not an error.

One-Time Setup

Standard vs. Actual: The Idea That Connects the Entire Cycle

Wafeq records two figures for everything in manufacturing: what you planned and what actually happened.

Standard is what you estimated in the BOM — the quantity of each component, its expected cost, and operating costs. Actual is what production consumed, at the real component costs in your inventory.
 

When the order is released, it takes a snapshot of both figures and locks them, so it is not affected by later changes to the BOM or to your inventory costs. The difference between the two figures is the variance shown as difference on the system screens and reports.
 

It is important to understand that variances are analytical figures used for review and monitoring; they are never posted to your books. The accounting entries record actual values only, and the assembly item enters inventory at its actual cost regardless of how it compares with the standard.

Going Backward: Disassembly Orders

You may need to convert an assembly item back into its components. production recorded by mistake that you want to reverse, or an assembled unit you want to take apart to use its components separately.

A Disassembly Order works directly against your inventory balance for the assembly item, not against a specific Production Order. You select the item, quantity, and warehouse; the system deducts the units from your finished goods inventory and returns their components to the warehouse at their current value.

However, disassembly is not a clean reversal of manufacturing. The components come back to you, but the labor and overhead capitalized into those units have nowhere to return to, so they are written off to the material variance account. As a result, your inventory does not return to its pre-manufacturing value, and disassembling a unit and manufacturing it again does not take you back to the starting point.

The Production Order that produced those units is not affected: it remains Completed with its full quantity, and the disassembly leaves no trace on it.

Where to Review Your Results

You can find the manufacturing reports under Reports, each answering a specific question:

• Production Register: What you produced and when, with standard and actual costs and their variances. Disassemblies appear here too.
• Cost of Goods Manufactured: The total cost of manufacturing over a period, broken down into components, labor, and overhead.
• Manufacturing Cost Variance: Where your actual costs exceeded your plan, what type of variance occurred, and which component or order caused it.
• Work in Process: The value of production currently in progress and not yet completed.
• Production Material Requirements: The components required by your planned Production Orders.
• Production Material Consumption: What your production actually consumed, with planned and unplanned scrap shown separately.

Guide Map