How to Create and Manage Production Orders

After setting up the Bill of Materials (BOM) and defining the raw materials and their costs, the next step is the actual production process through a Production Order. This is the document that turns the components defined in the BOM into a finished product that is ready for sale and available in your inventory.

While a BOM does not create any accounting entries or inventory movements, a Production Order issues the components from your warehouse, adds the Assembled Item to inventory, posts the relevant accounting entries, and measures the actual cost against the standard cost.
 

In this guide, we cover the complete Production Order cycle: from creating and issuing the order, to recording production output and closing the order.

Setting Up Production Accounts

Before creating your first Production Order, you need to configure the inventory settings once. These settings determine which accounts Wafeq uses to record production transactions and how the system behaves when components are unavailable.

None of these accounts are created automatically in the Chart of Accounts. You need to create them yourself and select them in the settings.

From the main menu, click "Settings", then select "Organization Settings".


 

Click "Manage" next to Inventory Settings.

Work in process (WIP) Account: This is the intermediate account to which the components of a Production Order are issued when the order is released. The components leave inventory while their value remains recorded in this account until production is completed.

Click the Work in process Account field, then click "+ Create Account".

 
Select "Inventory" as the parent account, name the account "Work in Process", then select it from the list


 

Manufacturing Material Variance Account: This is the account used to write off the value of the assembled product when it is disassembled, while its components are returned to inventory at their respective costs. It is also charged with any capitalized labor and overhead costs.

Repeat the previous steps: click "+ Create Account", select "Cost of Goods Sold" as the parent account, name the account "Manufacturing Material Variance", then select it from the list.

Default Cost of Goods Sold Account: This account records inventory consumption expenses when there is no more specific account available.

 It is configured automatically, but you can change it by selecting another account under Cost of Goods Sold

When a component is short: This setting determines how the system behaves when the available quantity of a component is insufficient: Warn (Allow) lets you proceed while displaying a warning, whereas Block prevents the transaction. This setting applies to both Production Orders and bundle sales.

After configuring all the settings, click "Save".

Two Production Paths: Instant (produce now) or Through work-in-process

Wafeq provides two types of Production Orders. You select the production type when creating the order, and you cannot change it afterward:

• Instant (produce now): A single inventory movement takes place: the components are issued from the warehouse and the Assembled Item is added to inventory at the same time. It does not require an intermediate account such as the WIP account, and the entire planned quantity is produced in one step. The status changes directly to Completed. Since the full planned quantity is produced at once, you cannot record production output in batches or close the order with a lower quantity.
• Through work-in-process: This option is designed for production that takes place over a period of time. The components are issued from the warehouse when the Production Order is released and remain in an intermediate account such as the WIP account. The units produced are then recorded in batches. With each batch, the corresponding products move from the WIP account to inventory.

This guide follows the full production cycle — Through work-in-process — because it is the longer and more detailed process. The steps that apply to Instant (produce now) are the same unless otherwise mentioned.

Creating a Production Order

From the main menu, click "Inventory", then select "Production Orders", and click "New Production Order".

Enter the Production Order details as follows:

• Assembly Item*: The Assembled Item you want to produce. Only tracked Assembled Items that have a BOM appear in this list. Once you select the item, the Production Order is linked to its BOM.

• Production Type: Instant (produce now): Issues the raw materials and adds the Assembled Item to inventory immediately with one click.

  Through work-in-process: Posts the raw materials to an intermediate account so you can track costs until production is completed.

  In this example, select "Through work-in-process".

• Warehouse: The warehouse from which the components are issued and where the Assembled Item is received.
• Planned Quantity: The number of units you want to produce.
• Planning Date: The start date of the Production Order.
• Due Date: The target completion date of the Production Order.
• Reference: Any number or text you want to use to identify the order. You can use it to link the order to an external document, such as a customer order number or an internal work order.
• Notes: Any additional details you want to record on the order.

Cost Cards

At the top of the components table, you will find four cards summarizing the Production Order cost. They are automatically updated whenever you change the quantity, components, or additional costs:

• Total Component Cost: The actual cost of the components, calculated based on the average cost of each component in your inventory on the planning date and in the selected warehouse.
• Additional Cost: The total cost of labor, overhead, and any other costs added to the order.
• Total Cost: The sum of the two costs above.
• Unit Cost: The total cost divided by the planned quantity.

Material Requirements

Once you select the Assembly Item and planned quantity, the system displays the components required to complete the order. The quantities are calculated based on the item's BOM multiplied by the planned quantity.

You do not need to enter anything in this table. It displays the material requirements; the fields are not intended for data entry.

Below the table title, you will see a note explaining what happens to these components: "Components are issued to the WIP account upon release."

• Component: The name of the raw material or component used to produce the item, as defined in the BOM.
• In Stock: The available quantity of the component in the selected warehouse. A green ✓ appears when the available quantity is sufficient to complete the order.
• Standard Quantity: The total quantity of the component required for this Production Order according to the BOM. If the component has a yield percentage, the system increases the quantity to account for the expected waste. It is called standard because it represents the planned quantity, which will later be compared with the actual quantity after production output is recorded.

• Standard Cost: The cost per basic unit of the component specified in the BOM. This is an estimated cost that the system uses to compare against the actual unit cost after the Production Order is completed.
• Unit Cost: The actual unit cost in your inventory, based on the average amount you have paid for the component in the selected warehouse up to the planning date. The difference between this and the standard cost is displayed below it.
• Standard Line Total: The planned cost of this component for the entire Production Order, calculated by multiplying the standard quantity by the standard cost. The total of all component lines is displayed at the bottom of the table. 

Additional Costs

These are operating costs that are capitalized as part of the value of the Assembled Item. They become part of its inventory cost rather than being recorded as a separate expense.

Below the section title, a note explains this: "Labor, overhead, and other planned costs for the entire Production Order. Each output capitalizes its share of these costs into the goods produced."
 

The system automatically populates this table from the BOM when you select an Assembly Item. You can edit the existing entries or add new ones.Type: Labor, overhead, or other.

• Account: The accounting account to which the cost is assigned.
• Description: Any description you want to add to the line.
• Amount: The cost amount.

Click "Add Cost" to add a new line, or click the delete icon to remove a line

Click "Save" to save the order in Planned status, or open the dropdown and select "Save and Release" to save and release it in one step. For Instant (produce now) production, click "Produce".

 

The Production Order After Release

After releasing the order, the screen changes as follows:

In the cards: "Completed from Planned" appears, showing the quantity you have produced. Additional costs are divided into two cards: "Standard Labor" and "Standard Overhead".

 

In the Material Requirements table: The "Available" column changes to "Issued". This represents the full quantity that left the warehouse when the order was released and moved to the WIP account. The Consumed Quantity column appears empty because it represents what was actually converted into products and is only populated when production output is recorded.

 

At the bottom of the screen: The Outputs section appears and is initially empty until you record production output.

 

 

Recording Production Output

Whenever a batch comes out of the production line, record it against the Production Order so the Assembled Item moves into your warehouse and its share of the components moves out of the WIP account.

You can record the entire planned quantity at once or record it in batches as production progresses.

To record a new output, click "Record completion". The Assembled Item will be added to your warehouse, and its share of the components will be moved out of the WIP account.

 

 

• completion Date: Enter the date on which the batch was completed.

• Quantity: Enter the number of units produced in this batch, whether it is the full planned quantity or only part of it.

Then click "Record completion".

After recording the completion, the screen compares what you planned with what actually happened: Completed at standard represents what the output was expected to cost, while Completed cost represents its actual cost. The Total cost variance appears in red when the actual cost exceeds the planned cost and in green when it is lower.

 

To understand the reason for the variance, review the Material requirements table. If the variance appears under Qty consumed, production consumed more or less of a component than planned. If it appears under Unit cost, the quantities are correct, but the actual component costs in inventory differ from the costs specified in the BOM.

 

Example: in the production order shown, the actual cost exceeded the planned cost by SAR 23.51. Reviewing the table shows that all quantities match the standard quantities, while the wood panel costs SAR 34.00 against a standard of SAR 32.00, and the chair leg costs SAR 5.2807 against SAR 5.00. The screw is slightly below standard at SAR 0.9972 against SAR 1.00. The variance is therefore caused by higher component costs rather than production waste. To address this, update the standard costs in the BOM so they are closer to your actual costs.

 

 

Distributing Additional Costs Across completions

The system distributes labor and overhead costs across production completions based on the quantity of each completion, allocating the corresponding share to each batch.

 

For example, on a production order of 10 chairs with SAR 250 in additional costs, a completion of two chairs would receive 20% of the costs — SAR 50 — while a completion of three chairs would receive 30%, or SAR 75. Once the order is complete, all additional costs will have been fully allocated.

In the order shown here, the single completion covers the entire planned quantity, so it bears the full SAR 250.

 

 

What Happens After Recording completion?

• The Assembly Item is added to your warehouse in the quantity you entered and becomes available for sale.

• The batch's share is removed from the WIP account, reducing the account balance by the amount converted into finished products. The remaining balance represents the production that has not yet been completed.

• An accounting entry is created: the Assembled Item inventory is debited for the value of the completion, while the WIP account is credited for the component share, and the additional cost accounts are credited for their respective shares.

You can view the entry by hovering over it and clicking the accounting entry icon to view the full entry.

 

Each completion is listed in the completions section at the bottom of the screen with its number, date, quantity, and cost. You can view its accounting entry or delete it.

The order status changes to "In Progress" after the first output and to "Completed" once the full planned quantity has been produced.

Closing a Production Order with a Lower Quantity

 

What happens when you close the order?

• The planned quantity becomes equal to the quantity actually completed, and the status changes to Completed.
• The standard costs are scaled down proportionally, so the system does not compare your production against a plan you did not execute.
• Unconsumed components are returned to inventory at the costs frozen when the order was released, clearing the work-in-process account. This happens by re-posting the last completion rather than creating a separate return document.
• Recorded completions are not deleted; they remain with their accounting entries.

Example: The planned quantity was 5 chairs and 3 were produced, so the system applies a ratio of 0.6 to every standard figure: Standard labor becomes SAR 45 instead of 75, Standard overhead SAR 30 instead of 50, and Total component cost SAR 151.05 instead of 251.75.

 

Notice the difference in the Material Requirements table: before closing, the consumed quantities were lower than the standard quantities (24 screws compared with 40), resulting in negative variances. After closing, they match the standard quantities because the standard itself has been reduced to match the actual production output.

The "Issued" column, however, remains unchanged because it records what actually left the warehouse when the Production Order was released.

The remaining variance is therefore the actual variance: SAR 18.10 caused by the higher component costs in inventory compared with their standard costs.

To learn how the system separates price variances from quantity variances and how to interpret them in cost reports, continue to the next tutorial on Cost Variance Analysis.