Page tree

 

 


 

 

Practice Manager only

The pro-rata method allocates amounts against WIP entries, based on the percentage of the total WIP balance that the bill amount represents. This method is ideal if you are clearing the WIP balance totally.

This is illustrated in the table below where the bill 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 employees who worked on the (AE) assignment / (AO) job.

 

Date

Employee

Amount

Allocation

WIP Entry Balance

30-11-08

Tom

150.00

66.67

33.33

01-12-08

Dick

200.00

133.33

66.67

02-12-08

Harry

300.00

200.00

100.00

03-12-08

Tom

400.00

266.67

133.33

04-12-08

Dick

500.00

333.33

166.67

04-12-08

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 measuring employee recoverability. If at the end of an assignment/job, 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/job level and using the FIFO method, the employees who worked on the assignment/job last would have the write-off allocated against their entries.

Disadvantages

A disadvantage of using the pro-rata method is where the practice is partially billing a client on a regular basis. The table above illustrates this where two additional WIP entries have been input and a new bill 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.