What Is Work in Process (WIP)?
Work in process (WIP) is inventory that has entered production but is not yet finished. Its value includes the materials, labor, and overhead applied so far, and it is reported as a current asset on the balance sheet until the goods are complete.
What Is Included in Work in Process?
WIP is valued at the production costs charged to each open job so far:
| Cost | What It Includes |
|---|---|
| Direct Materials | Raw materials and components issued to the job from the bill of materials. |
| Direct Labor | Wages for time workers spend on the job, recorded on the shop floor. |
| Manufacturing Overhead | An applied share of indirect costs such as equipment, utilities, and supervision. |
| Outside Processing | Work sent to outside vendors during production, such as plating, finishing, or machining. |
Work in Process Formula
Accountants calculate ending WIP for each period with this formula:
Work in Process Example
A furniture maker closes the month and calculates WIP for its chair and table production.
| Monthly WIP Calculation | Amount |
|---|---|
Beginning WIP | $18,000 |
+Direct materials issued | $42,000 |
+Direct labor | $26,000 |
+Manufacturing overhead applied | $14,000 |
=Total cost in production | $100,000 |
−Cost of goods manufactured (chairs completed) | $76,000 |
=Ending WIP | $24,000 |
WIP by Open Work Order
The $24,000 is the sum of costs charged to the work orders still open at month end:
| Work Order | Item | Stage | Materials | Labor | Overhead | WIP Value |
|---|---|---|---|---|---|---|
| WO-2231 | Dining Chair, Oak | Assembly | $9,600 | $3,200 | $1,700 | $14,500 |
| WO-2238 | Seat Assembly | Upholstery | $5,400 | $1,800 | $900 | $8,100 |
| WO-2242 | Side Table, Oak | Cutting | $1,100 | $200 | $100 | $1,400 |
| Ending WIP, 3 open work orders | $16,100 | $5,200 | $2,700 | $24,000 | ||
When WO-2231 is completed, its $14,500 moves out of WIP and into finished goods inventory.
Raw Materials vs. WIP vs. Finished Goods
Manufacturers carry three types of inventory. WIP sits between the other two.
| Raw Materials | Work in Process | Finished Goods | |
|---|---|---|---|
| Stage | Not yet in production | In production | Complete and ready to sell |
| Valued At | Purchase cost | Materials plus labor and overhead so far | Full production cost |
| Balance Sheet | Current asset | Current asset | Current asset |
| Example | Oak boards and screws | Chairs being assembled | Boxed chairs in the warehouse |
Why Tracking WIP Matters
Accurate Financial Statements
Inventory and cost of goods sold are only correct when WIP is valued properly at each close in financial management.
Production Visibility
Seeing WIP by stage shows where jobs are waiting and where bottlenecks form.
True Job Costing
Comparing actual costs charged to a job against its estimate shows which products make money.
Cash Flow
WIP is cash tied up in unfinished goods. Less time in production means cash comes back sooner.
Common WIP Mistakes to Avoid
WIP errors usually show up as inventory adjustments or margins that change after the books close.
Not Recording Labor to Jobs
If labor isn't charged to work orders, WIP is understated and product cost looks lower than it is.
Leaving Finished Jobs Open
Completed work orders that aren't closed keep finished goods stuck in WIP.
Estimating WIP at Month End
Walking the floor and guessing percent complete gives a different number every month.
Releasing Too Much Work
Starting jobs before materials or capacity are ready builds queues and ties up cash.
Which Industries Track Work in Process?
Any business that converts materials into finished products carries WIP. The most common are:
Manufacturing
Discrete and process production with multi-step work orders.
Furniture & Home Decor
Pieces moving through cutting, assembly, finishing, and upholstery.
Apparel
Garments in cutting, sewing, and finishing by style and size.
Food Services
Batches in mixing, cooking, cooling, and packaging.
Health & Beauty
Formulations in blending, filling, and labeling.
Distribution
Kits and light assembly jobs completed before shipment.
Tracking WIP in Kechie ERP
,Kechie Manufacturing records material issues, labor, and overhead against each work order as production happens, so WIP is always current. Completed work orders move to finished goods in inventory automatically, and costs post to the general ledger in accounting. Related features include MRP for material planning and bills of materials for product structure.
Frequently Asked Questions
What is work in process in simple terms?
Work in process is anything a manufacturer has started making but has not finished. It includes the materials used so far plus the labor and overhead spent on it.
Is it work in process or work in progress?
Both terms are used. In manufacturing, work in process usually describes goods on the production floor. Work in progress is more common for long projects such as construction or consulting.
Is WIP an asset?
Yes. WIP is part of inventory and is reported as a current asset on the balance sheet until the goods are finished and sold.
How do you calculate ending WIP?
Ending WIP equals beginning WIP plus manufacturing costs added during the period, minus the cost of goods manufactured. Manufacturing costs are direct materials, direct labor, and overhead.
What is the difference between WIP and cost of goods sold?
WIP stays on the balance sheet while goods are in production. When goods are finished they move to finished goods inventory, and when they are sold their cost becomes cost of goods sold.
How do you reduce WIP?
Release work orders only when materials and capacity are ready, fix bottlenecks that cause queues, and close completed jobs promptly so they don't sit in WIP.
What is a WIP limit?
A WIP limit is a cap on how many jobs can be in a production stage at once. It is a lean manufacturing practice that reduces queues and shortens lead times.
How often should WIP be calculated?
At minimum at every month-end close. ERP systems that record material issues and labor against work orders keep WIP current in real time.
Related Guides
See Real-Time WIP in Kechie ERP
Track materials, labor, and overhead on every work order, and close the month without estimating WIP.