{"id":1244,"date":"2024-09-12T17:56:20","date_gmt":"2024-09-12T17:56:20","guid":{"rendered":"https:\/\/www.shipbob.com\/uk\/blog\/work-in-process-inventory\/"},"modified":"2025-11-18T14:29:14","modified_gmt":"2025-11-18T14:29:14","slug":"work-in-process-inventory","status":"publish","type":"blog","link":"https:\/\/www.shipbob.com\/uk\/blog\/work-in-process-inventory\/","title":{"rendered":"Work in Process Inventory (WIP): Definition, Formula, and Examples"},"content":{"rendered":"\n

Table of Contents<\/p>

** Minutes<\/p><\/div><\/div>\n

What is work in process inventory?<\/a><\/p>\n\n\n\n

Formula to calculate work in process inventory<\/a><\/p>\n\n\n\n

Work in process inventory calculator<\/a><\/p>\n\n\n\n

Accounting for WIP inventory in the balance sheet<\/a><\/p>\n\n\n\n

3 metrics you need to know to calculate current WIP inventory<\/a><\/p>\n\n\n\n

How to optimise work in process inventory flow<\/a><\/p>\n\n\n\n

Optimise your work in process inventory with ShipBob<\/a><\/p>\n\n\n\n

Work in process inventory FAQs<\/a><\/p>\n<\/div>\n\n\n\n

Many products are made up of several components that must be made or purchased before people making the product can use them to manufacture the final product. For example, think of a computer mouse: it looks like a simple device, but if you take it apart, you will find several different pieces that make the mouse function as it should. <\/p>\n\n\n\n

The cost of purchasing a product factors into what it costs to make it (e.g., raw materials, labour, and production). Thus, your ending WIP inventory is essential to know for inventory accounting<\/a>.<\/p>\n\n\n\n

In this article, you\u2019ll learn what costs are associated with work-in-process (WIP) inventory and how to determine how much WIP inventory you have in production.<\/p>\n\n\n\n

What is work in process inventory?<\/h2>\n\n\n\n

Work in process (WIP) inventory is a term used to refer to partly finished materials within any production round. Work in process in production and supply chain management<\/a> refers to the total cost of unfinished goods currently in production. <\/p>\n\n\n\n

Any raw material inventory that humans have worked on but is not yet considered a finished good is a work-in-process inventory. You can think of WIP inventory as all inventory that has not yet reached the finished product inventory but is not raw materials. This makes WIP inventory a part of manufacturing inventory. <\/p>\n\n\n\n

Businesses that sell highly custom products (e.g., hand-made products on Etsy<\/a>) are more likely to oversee the WIP inventory process than a business that purchases finished goods<\/a> directly from a supplier or manufacturer.<\/p>\n\n\n

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Formula to calculate work in process inventory<\/h2>\n\n\n\n

The work in process inventory formula consists of the ending work inventory for that period, and the beginning work inventory for the next one. Once you\u2019ve determined your beginning WIP inventory and you calculate your manufacturing costs as well as your cost of manufactured goods, you can easily determine how much WIP inventory you have.<\/span><\/p>\n\n\n\n

The formula for calculating WIP inventory is:<\/p>\n\n\n\n

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Beginning WIP Inventory + Manufacturing Costs \u2013 COGM = Ending WIP Inventory <\/strong><\/span><\/p>\n<\/blockquote>\n\n\n

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Calculating WIP inventory examples<\/h3>\n\n\n\n

To help you better understand how to determine the current WIP inventory in production, here are some examples.<\/span><\/p>\n\n\n\n

WIP inventory example #1<\/h4>\n\n\n\n

Let\u2019s say your company\u2019s beginning WIP, as determined by the previous accounting record, is around $10,000 for the new year. During the new year, your business spends $150,000 on manufacturing costs. Furthermore, your total cost of finished goods is $250,000. This leaves your ending WIP inventory as:<\/span><\/p>\n\n\n\n

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Beginning WIP Inventory + Manufacturing Costs \u2013 COGM = Ending WIP Inventory <\/strong><\/span><\/p>\n\n\n\n

$110,000 + $150,000 \u2013 $250,000 = $10,000. <\/strong><\/span><\/p>\n<\/blockquote>\n\n\n\n

So, your ending work in process inventory is $10,000.<\/span><\/p>\n\n\n\n

WIP inventory example #2<\/h4>\n\n\n\n

For a more comprehensive example, let\u2019s say you run a shoe brand with a beginning WIP of $100,000. In the new year, you spend $150,000 on manufacturing costs. Your manufacturer also produced 5,000 pairs of shoes, each costing around $30 to produce on average. Your cost of finished goods is:<\/span><\/p>\n\n\n\n

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$30 x 5000 = $150,000<\/strong><\/span><\/p>\n<\/blockquote>\n\n\n\n

From there, you would calculate the ending WIP inventory amount:<\/span><\/p>\n\n\n\n

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Beginning WIP Inventory + Manufacturing Costs \u2013 COGM = Ending WIP Inventory<\/strong><\/p>\n\n\n\n

$100,000 + $150,000 \u2013 $150,000 = $100,000<\/strong><\/span><\/p>\n<\/blockquote>\n\n\n\n

Thus, your ending WIP inventory comes out to be $100,000 for the year.<\/span><\/p>\n<\/div><\/div>\n\n\n\n

Work in process inventory calculator<\/h2>\n\n\n\n
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