In this article, you will learn what is work in process WIP and how to estimate it according to lean manufacturing techniques.
Work In Process WIP Definition
Work in process is all the work that is actively being partially done at any one time.
It is a metric that describes the amount of partially finished goods awaiting completion and eventual sale or the value of these items.
In addition, it includes partial products that are either just being fabricated or waiting for further processing in a queue or a buffer storage.
Moreover, the Work-in-process is a term used in production and supply chain management when you are implementing lean manufacturing.
The work-in-process WIP considers the components, raw materials, labor, and overhead costs incurred for products that are at various stages of the production process.
Also, it is considered as a component of the inventory asset account on the balance sheet.
These inventory asset accounts are subsequently transferred to the finished goods account and eventually to the cost of sales.
Part of the inventory is categorized as WIP when it has been mixed with human labor but has not reached final goods status; only some but not all necessary labor has been added to the product.
Work in process is the total amount of work you have committed to but have not completed at any one time.
How to Calculate Work In Process WIP.
Any raw material inventory that has been combined with human labor but is not yet finished goods inventory must be considered in ending work in process inventory formula.
Therefore, the formula to calculate the Work in Process (WIP) is:
Ending WIP Inventory = Beginning WIP Inventory + Manufacturing Costs – Cost of Finished Goods
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REFERENCES: Work In Process.