Pro-rata WIP Entry Method

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    The pro-rata method allocates amounts against WIP entries based on the percentage of the total WIP balance the invoice amount represents. This is illustrated in the table below where the invoice amount is $1,000 and the total WIP is $1,500. Each WIP entry balance is reduced by two-thirds leaving one-third as the WIP entry balance.

    The pro-rata method spreads a write-off across all the employees who worked on the assignment.

    Date

    Employee

    Amount

    Allocation

    WIP Entry Balance

    30-11-05

    Tom

    100.00

    66.67

    33.33

    01-12-05

    Dick

    200.00

    133.33

     66.67

    02-12-05

    Harry

    300.00

    200.00

     100.00

    03-12-05

    Tom

    400.00

    266.67

    133.33

    04-12-05

    Dick

    500.00

    333.33

     166.67

    04-12-05

    INVOICE 122

    -1,000.00

     

     

    Bill

    1,000.00

     

    Write off

    0.00

     

    Total WIP

    1,500.00

     

    Proportion

    .67

     

    Closing WIP

    500.00

     

    Advantages

    The major advantage of using the pro-rata method is in terms of measuring employee recoverability. If at the end of an assignment, 10% is written off, all employees will proportionately have 10% written off against their WIP contribution. Whereas, if the practice was billing at the assignment level and using the FIFO method, the employees who worked on the assignment last would have the write off allocated against their entries.

    Disadvantages

    A disadvantage in using the pro-rata method is in situation where the practice is partially billing a client on a regular basis. The table below illustrates this where two additional WIP entries have been input and a new invoice is raised for $1,125. As the WIP is being carried forward at the time of billing, the pro-rata allocation reduces each WIP entry balance by 75% (that is, $1125/$1500). This results in the previous partially billed WIP entries having a balance and still needing to either be billed or written off (on) in a future period.