Work in process – What is work in process?
Work in process, sometimes called work in progress or goods in process, refers to the production cost of partially completed goods.
Learn more about stock management and the different types of stock.
Work in process includes the cost of raw materials plus the cost of any labour or additional overheads incurred when producing an incomplete product, such as storage.
Because of variations in scrap levels and spoilage, it isn’t always possible to accurately calculate work in process. However, work in process is still an important part of the profit and loss statement as there can be a considerable amount tied up in goods or products that aren’t yet finished.
Work in process is one of three inventory assets found on a balance sheet – the other two are raw materials and finished goods.
Work in process is usually measured at the end of an accounting period to most accurately value how many incomplete goods are still sitting within the production process. Once the goods are finished, the cost is transferred to the finished goods account, then eventually to the cost of goods sold.
However, not all businesses will need to address work in process – particularly companies with a very short production period.
For example, bakeries or cake manufacturers use ingredients that are quickly transformed from raw materials to a finished product. Flour, sugar, etc. would therefore shift directly from the raw materials inventory to the finished goods inventory.
Production management often tries to reduce work in process as much as possible. Work in process requires storage space and represents tied-up capital that can’t be used for investment. For some businesses, work in process also carries the risk of reducing the life shelf of perishable products.
From this perspective, reducing work in process means that a business is likely to incur less overheads such as storage and there’s less chance of paying to store expiring products.