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
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.
Hence, this concludes the definition of Work in Process (WIP) along with its overview.
This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.
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