How to Calculate Work in Progress
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Inventory management is a huge part of maintaining lean and effective operations. From manufacturing to distribution, good inventory management can mean the difference between winning and losing a contract. Recorded as an asset on the balance sheet, work in progress (WIP) is any good that is not ready for final sale.
This inventory must still be accounted for, as funds have been spent.
Separate raw materials from work in process. WIP includes all inventory which has been moved to production. The three categories of inventory are Raw Materials, Work in Progress, and Completed.
- Inventory management is a huge part of maintaining lean and effective operations.
- The three categories of inventory are Raw Materials, Work in Progress, and Completed.
Apply an average amount for direct labour and overhead. This amount should be more than raw material but less than finished or completed inventory. For instance, if the raw inventory price is £3 and I sell the finished good for £13, the WIP value should be anywhere from £3 to £13.
Determine the per cent of completion. The item can be 25, 50, or 75 per cent complete. Use your discretion to choose the right number.
Average the percentages of WIP. Let's say the average per cent of completion is 50 per cent. Multiply this percentage by the number of items in WIP. For example, 500 items equals 250 (500 x .50) WIP items. Let's also say the value at 50 per cent complete is £8.10. Multiply this by 500 for the total current WIP value.
- Apply an average amount for direct labour and overhead.
- Multiply this percentage by the number of items in WIP.
Add the current period's WIP goods to the WIP account. Then subtract the work that was completed in the current period from the WIP account for the Work in Progress value.
Working as a full-time freelance writer/editor for the past two years, Bradley James Bryant has over 1500 publications on eHow, LIVESTRONG.com and other sites. She has worked for JPMorganChase, SunTrust Investment Bank, Intel Corporation and Harvard University. Bryant has a Master of Business Administration with a concentration in finance from Florida A&M University.