Work in process inventory

Definition

Work in process (WIP) inventory consists of partially finished goods that are still in the production process. These items have incurred some costs but are not yet complete and ready for sale.

5 Must Know Facts For Your Next Test

1. WIP inventory includes direct materials, direct labor, and manufacturing overhead costs.
2. The value of WIP is reported on the balance sheet as a current asset.
3. Tracking WIP helps managers understand production efficiency and cost control.
4. WIP inventory transitions to finished goods inventory once the production process is complete.
5. Accurate tracking of WIP is crucial for proper job order costing and financial reporting.

Review Questions

• What three cost components make up work in process inventory?
• How does WIP inventory appear on financial statements?
• Why is accurate tracking of WIP important in job order costing?

Related terms

Direct Materials: Raw materials that are used directly in the manufacturing of products.

Direct Labor: The labor costs directly associated with the production of goods.

Manufacturing Overhead: All indirect costs related to manufacturing, such as utilities and depreciation.