Work in Process (WIP)
What it is:
Work-in-process (WIP) refers to a component of a company's inventory that is partially completed. The value of that partially completed inventory is sometimes also called goods in process on the balance sheet (particularly if the company is manufacturing tangible items rather than providing services).
The formula for WIP is:
Work in process = (operating inventory goods in process + raw materials used during the period + direct labor during the period + factory for period) -
How it works/Example:
For example, let's assume Company XYZ manufactures widgets. It takes two weeks to make a widget. On the last day of the month, when Company XYZ "closes the books," the company counts its left-hand side of the (that is, they are recorded as assets).and sees that it has 10,000 widgets. It also has 4,000 partially completed widgets. These 4,000 partially completed widgets are recorded as work in process on the
Why it matters:
For obvious reasons, work in process is not worth as much as completed goods, but they are worth more than raw materials because they have incurred some labor and .
Changes in the amounts of work in process can be telling. For instance, an increase suggests an capital soon to cope with the growth). In turn, widespread increases in work in process for an industry or entire economic sector may indicate economic growth; likewise, decreases may indicate a pending slowdown.in demand for a company's goods (which is almost always a good thing for the company's shareholders, though it may also signal that the company need