Work in Process (WIP)

Posted in Operations and Supply Chain Terms, Total Reads: 2623
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Definition: Work in Process (WIP)

Work in progress is defined as the goods which are in various stages upto the completion stage. It may include material that has been released for initial processing but not completely processed or goods awaiting final inspection. Some of the accounting systems include value of semi finished  goods in this category.

Formula used :

Inventory-Raw material –Finished Goods = Work in Process

The work in process inventory management takes place in two ways

1) Capacity Control: It is a process of measuring production output with the capacity plan. The difference between the output and the predetermined limits is the variance. If variance exceeds pre-established limits, then corrective action is taken to get back on track

2) Priority Control: It is a process of communicating start and completion dates to manufacturing departments in order to execute a plan. The priority control are the priorities based on the current plan and status of all open orders

Example :

The leather as raw material in the various stages of production can be considered as a work in progress if it is cut into pieces or partly sewed  or woven and has to undergo  additional stages before converting into  finished products such as belts, shoes, purse etc.


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