Answers the Question
How much money is tied up in unfinished goods?
Calculator for Work in Process
What Is the Work in Process?
Work in process is a measure of expenditures in items that aren't yet ready to be sold.
Also commonly referred to as WIP.
Why Is it Important?
- As a general rule, work in process should be minimized. The higher the value, the less money that is available to be used for other purposes. This may mean that firms will have to take on increasing quantities of debt or avoid pursuing other business opportunities.
- Additionally items that are considered work in progress may depreciate or face a lower demand from consumers once they have been completed. Every dollar invested in unsold inventory represents risk.
Formula(s) to Calculate Work in Process
- WORK IN PROCESS = INITIAL WORK IN PROCESS + DIRECT LABOR + OVERHEAD - COST OF FINISHED GOODS
- Ignoring work in process calculations entirely. Most businesses that are not run by experienced operations management experts will have too much work in process.