Work in Progress (WIP)
Partially completed goods still moving through the manufacturing process, representing inventory between raw materials and finished goods.
What is Work in Progress?
Work in progress (WIP), also known as work in process, refers to the value of partially completed goods that are still being manufactured and are not yet ready for sale. WIP is one of three inventory categories on a manufacturer's balance sheet, alongside raw materials and finished goods. The WIP balance includes the accumulated cost of raw materials used, direct labor applied, and manufacturing overhead allocated to units that have not yet been completed. Accurately valuing WIP is essential for financial reporting and calculating cost of goods manufactured.
Example
A furniture manufacturer begins the period with $80,000 in raw materials. During the month, it transfers $60,000 of materials into production and incurs $25,000 in direct labor and $15,000 in overhead. The ending WIP balance reflects the cost of chairs and tables still on the factory floor awaiting completion.
Source: FASB ASC 330 — Inventory