Work In Process
Partially Completed Goods in the Manufacturing Cycle
Work In Process (WIP), also called Work In Progress, is inventory that has started the production process but is not yet finished. It includes items where raw materials have been released into manufacturing, labor and overhead have been applied, but the products still need additional processing before they become finished goods ready for sale.
What Work In Process Includes
Work In Process captures everything between raw materials and finished goods:
- Partially assembled products on the factory floor
- Sub-assemblies awaiting final integration
- Goods in various stages of machining, painting, testing
- Labor costs and overhead allocated to in-progress items
Once complete, WIP becomes Finished Goods.
Service companies rarely have WIP—more common in manufacturing.
A Real-World Example
An auto manufacturer:
- Steel and parts → Raw Materials
- Chassis welded, engine installed → Work In Process
- Painted, interior fitted, tested → moves to Finished Goods
At month-end, 500 cars in various assembly stages = $50M WIP inventory.
How Costs Flow Into WIP
- Direct materials released from raw stock
- Direct labor (factory workers' time)
- Manufacturing overhead allocated (rent, utilities, supervision)
- Using standard costing or actual costing systems
Costs accumulate until completion, then transfer to Finished Goods.
Accounting Treatment
- Valued at accumulated production cost
- Lower of cost or net realizable value test
- Physical counts reconcile book to actual
- Overhead allocation critical (absorption costing)
- Write-downs for obsolete or spoiled WIP
No depreciation on WIP itself—only on factory assets.
Balance Sheet Presentation
Under current assets → Inventory as:
- 'Work In Process'
- 'Work In Progress'
- Separate line between Raw Materials and Finished Goods
Often the smallest component in efficient operations.
Why Companies Track WIP Closely
- Measures production efficiency (high WIP = bottlenecks)
- Ties up working capital (cash locked in half-made goods)
- Indicator of lean manufacturing success (low WIP ideal)
- Cost control (overhead absorption)
- Cycle time and throughput analysis
Rising WIP without sales growth often signals production issues or overproduction.
Key Takeaways
Work In Process is inventory in active production—not raw, not finished.
Includes materials + labor + overhead applied so far.
Intermediate stage in manufacturing flow.
High WIP ties up cash and signals inefficiency.
Goal in modern manufacturing: minimize through lean/JIT.
Monitor trends for production health and capital efficiency.
Work In Process
Partially Completed Goods in the Manufacturing Cycle
Work In Process (WIP), also called Work In Progress, is inventory that has started the production process but is not yet finished. It includes items where raw materials have been released into manufacturing, labor and overhead have been applied, but the products still need additional processing before they become finished goods ready for sale.
Table of Contents
What Work In Process Includes
Work In Process captures everything between raw materials and finished goods:
- Partially assembled products on the factory floor
- Sub-assemblies awaiting final integration
- Goods in various stages of machining, painting, testing
- Labor costs and overhead allocated to in-progress items
Once complete, WIP becomes Finished Goods.
Service companies rarely have WIP—more common in manufacturing.
A Real-World Example
An auto manufacturer:
- Steel and parts → Raw Materials
- Chassis welded, engine installed → Work In Process
- Painted, interior fitted, tested → moves to Finished Goods
At month-end, 500 cars in various assembly stages = $50M WIP inventory.
How Costs Flow Into WIP
- Direct materials released from raw stock
- Direct labor (factory workers' time)
- Manufacturing overhead allocated (rent, utilities, supervision)
- Using standard costing or actual costing systems
Costs accumulate until completion, then transfer to Finished Goods.
Accounting Treatment
- Valued at accumulated production cost
- Lower of cost or net realizable value test
- Physical counts reconcile book to actual
- Overhead allocation critical (absorption costing)
- Write-downs for obsolete or spoiled WIP
No depreciation on WIP itself—only on factory assets.
Balance Sheet Presentation
Under current assets → Inventory as:
- 'Work In Process'
- 'Work In Progress'
- Separate line between Raw Materials and Finished Goods
Often the smallest component in efficient operations.
Why Companies Track WIP Closely
- Measures production efficiency (high WIP = bottlenecks)
- Ties up working capital (cash locked in half-made goods)
- Indicator of lean manufacturing success (low WIP ideal)
- Cost control (overhead absorption)
- Cycle time and throughput analysis
Rising WIP without sales growth often signals production issues or overproduction.
Key Takeaways
Work In Process is inventory in active production—not raw, not finished.
Includes materials + labor + overhead applied so far.
Intermediate stage in manufacturing flow.
High WIP ties up cash and signals inefficiency.
Goal in modern manufacturing: minimize through lean/JIT.
Monitor trends for production health and capital efficiency.
Related Terms
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