Work in Progress
BeginnerWork in progress is the value of goods that are partly made but not yet finished at a particular date. It includes the raw materials used so far, plus labour and production costs added to them.
For a manufacturer, production is a process. At any moment, some products are only part of the way through. Work in progress, often abbreviated as WIP, captures the cost already invested in these unfinished items.
The value of WIP is built up from three types of cost: the raw materials already used, the wages of workers who have worked on the items and a share of factory overheads, such as machine running costs and factory rent.
For example, a boat builder might have three boats halfway through construction at year-end. If materials used so far cost 60,000, labour 45,000 and allocated overheads 15,000, the work in progress is valued at 120,000.
WIP appears in inventory on the balance sheet. For service businesses, such as law firms or consultancies, a similar idea applies to work done for clients that has not yet been billed. Large or rising WIP can indicate production bottlenecks, while accurate valuation is important for correctly measuring profit.
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