work in process
{{Short description|Partially finished goods waiting for completion and eventual sale or value of these items}}
{{redirect|Work in progress}}
Work in process or work-in-process, (WIP),{{cite web|url=http://business.yourdictionary.com/work-in-process|title=Work-in-process dictionary definition | work-in-process defined|publisher=business.yourdictionary.com|access-date=2014-07-12}}{{cite web|url=http://www.ventureline.com/accounting-glossary/w/work-in-process-definition/|title=WORK IN PROCESS DEFINITION|publisher=ventureline.com|access-date=2014-07-12}}{{cite web|url=http://www.businessdictionary.com/definition/work-in-process.html|title=What is work in process? definition and meaning|publisher=businessdictionary.com|access-date=2014-07-12|archive-date=2019-12-05|archive-url=https://web.archive.org/web/20191205005123/http://www.businessdictionary.com/definition/work-in-process.html|url-status=dead}}{{cite web|url=http://financial-dictionary.thefreedictionary.com/work+in+process|title=Work in Process financial definition of Work in Process|publisher=financial-dictionary.thefreedictionary.com|access-date=2014-07-12}} work in progress (WIP),{{cite web|url=http://www.collinsdictionary.com/dictionary/english/workinprogress|title=Collins English Dictionary | Always Free Online|publisher=collinsdictionary.com|access-date=2014-07-12}}{{cite web|url=http://www.investopedia.com/terms/w/workinprogress.asp|title=Work In Progress (WIP) Definition | Investopedia|publisher=investopedia.com|access-date=2014-07-12}}{{cite web|title=What Is Work-In-Progress (WIP)? {{!}} Finance Strategists|url=https://www.financestrategists.com/terms/work-in-progress/|access-date=2020-11-11|website=Finance Strategists|publisher=financestrategists.com}} goods in process, or in-process inventory refers to a company's partially finished goods waiting for completion and eventual sale, or the value of these items.{{cite web|url=http://www.tuition.com.hk/dictionary/w.htm|title=W - Wage to WTO (World Trade Organisation) - Dictionary|publisher=tuition.com.hk|access-date=2014-07-12}} The term is used in supply chain management, and WIP is a key input for calculating inventory on a company's balance sheet. In lean thinking, inappropriate processing or excessive processing of goods or work in process, "doing more than is necessary", is seen as one of the seven wastes (Japanese term: muda) which do not add value to a product.EKU Online, {{cite web|title=The Seven Wastes of Lean Manufacturing|url=https://safetymanagement.eku.edu/blog/the-seven-wastes-of-lean-manufacturing/|archive-url=https://web.archive.org/web/20230326031300/https://safetymanagement.eku.edu/blog/the-seven-wastes-of-lean-manufacturing/|archive-date=2023-03-26|url-status=dead}}, Eastern Kentucky University, accessed 6 March 2023McDonald, M. P., [https://blogs.gartner.com/mark-mcdonald/2009/10/09/inappropriate-processing-muda-matters-in-it/ Inappropriate Processing: Muda matters in IT], Gartner, published 9 October 2009, accessed 7 March 2023
WIP inventory in supply chain management
WIP inventory calculations can help a company assess their supply chain health and guide in supply chain planning.{{Cite web |date=2021-08-25 |title=What is Work in Process (WIP) Inventory & How to Calculate It |url=https://ware2go.co/work-in-process-inventory/ |access-date=2022-07-13 |website=Ware2Go |language=en-US}} In most cases, it is ideal to have low WIP inventory levels, and companies that manage their inventory level efficiently tend to have lower costs.{{Cite web |date=2019-04-23 |title=What is Work in Process (WIP) in logistics? - SCM EDU |url=https://scmedu.org/workinprocess_wip_/ |access-date=2022-07-13 |language=en-US}} Managing WIP inventory requires coordination between several functions within a company, as well as with suppliers and customers. Higher WIP inventory levels are advantageous in that they can support a surge in demand, as well as improve cycle time since there is more material in production. However, this can also increase storage costs and obsolescence risk, as well as lead to waste if demand is lower than expected.{{Cite web |date=2020-10-26 |title=WIP Inventory {{!}} Advantages and Disadvantages of WIP Inventory |url=https://www.educba.com/wip-inventory/ |access-date=2022-07-13 |website=EDUCBA |language=en-US}} To mitigate these risks, companies are increasingly turning to demand forecasting software.{{Cite news |last=NetSuite.com |title=Manufacturing Financial Statements Explained |url=https://www.netsuite.com/portal/resource/articles/accounting/manufacturing-financial-statements.shtml |archive-url=http://web.archive.org/web/20240621232627/https://www.netsuite.com/portal/resource/articles/accounting/manufacturing-financial-statements.shtml |archive-date=2024-06-21 |access-date=2025-02-08 |work=Oracle NetSuite |language=en}} These tools analyze historical data, market trends, and customer behavior to predict future demand with greater accuracy. This allows companies to optimize WIP levels, ensuring they have enough material to meet anticipated demand without carrying excessive inventory that could become obsolete.{{cite web |last1=Dekhne |first1=Ashutosh |last2=Lange |first2=Tim |last3=Magnus |first3=Karl-Hendrik |last4=Scheringer |first4=Isabell |last5=Vincken |first5=Simon |title=Retail and Consumer Packaged Goods:Better service with connected inventory |url=https://www.mckinsey.com/~/media/McKinsey/Industries/Retail/Our%20Insights/Better%20service%20with%20connected%20inventory/Better-service-with-connected-inventory.pdf |website=McKinsey.com |publisher=McKinsey & Company}}
WIP inventory in accounting
WIP inventory refers to goods that are in production and not yet a finished good.{{Cite web |title=What Work-in-Progress Really Means |url=https://www.investopedia.com/terms/w/workinprogress.asp |access-date=2022-07-13 |website=Investopedia |language=en}} On the balance sheet, WIP inventory is aggregated into the inventory line under current assets along with raw materials and finished goods.{{Cite web |first=Jeff|last=Schmidt|title=Inventory |url=https://corporatefinanceinstitute.com/resources/knowledge/accounting/inventory/ |access-date=2023-03-07 |website=Corporate Finance Institute |language=en-US}}
To calculate WIP inventory at the end of an accounting period, the following 3 figures are required: beginning WIP inventory, production costs, and finished goods. Beginning WIP inventory is the WIP inventory figure from the previous accounting period. Production costs includes all costs associated with manufacturing a product, such as raw materials, labor, and overhead costs. Finished goods is the total value of goods ready for sale in the current accounting period. The formula for calculating WIP inventory is as follows: beginning WIP inventory + production costs – finished goods.
Tax treatment
In the United Kingdom, HMRC has no specific definition of work-in-process, but three different types of uncompleted items are identified for tax purposes:
- manufactured products
- contracts for services
- construction contractsHMRC, [https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim33020 Business Income Manual, section 33020 - Stock: meaning of: work in progress], accessed 24 January 2018
References
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