Work in Process Inventory Examples and Calculations

What is Work in Process Inventory?

Work in Process Inventory: When products you are always going to have partially finished products in your inventory. That is waiting to be finished over a period of time. These products can be grouped under the category of work in process. These types of situations where you have a lot of unfinished products at times are quite normal. You have a lot of different situations that can happen in your organization that may lead to this.

Work in process inventory examples: For example you have run out of materials to create a certain amount of products. As a result of this you would have to freeze the production process until you have bought the materials to use. Another example would be one of your production equipment has broken down so your processes have come to a halt.


Work in process inventory


When it comes onto the accounting aspect of this situation. It’s always important to calculate the cost of the products that are in work in progress.

This will give you an update on the overall cost of how much it took for you to create those products up to that point. Moreover it can help you see how much money you are losing while those unfinished products are in the inventory. When you analyze these costs it will help you to manage your budget better. It can even give you a financial overview of the processes to ensure those cost doesn’t affect have a huge impact on your budget.

How to Calculate Work in Process Inventory?

When you are ready to calculate work in process inventory, you must calculate it based off of the cost of production to the point where of the processes had first come to a halt. Calculating how much it will cost to produce the unfinished products is also necessary. Furthermore you must calculate the value of the materials as well. Add it into the whole mix along with direct labor and factory cost.

To try and reduce work in process inventory, what you can do is to monitor your processes and equipment. This will make certain that everything is functioning properly and they are not a lot of hiccups within your daily operations. Try to have operational training programs for your employees. It can allow them to be fully equipped to do the job on the production line.

In reality not everyone is going to be fully equipped to do the correct job. Investing in your employees and train them will reduce a lot of problems and confusion for them later on. Another strategy you can use is to make a deal with your suppliers to order materials ahead of time. What will happen is that once you’ve ran out of materials you can easily get it from that supplier. Usually you will also get it at a cheaper price as well.


how to calculate work in process inventory examples


As a summary, the work in process inventory is products that are partially produced waiting to be processed. There can be many reasons that may lead to partially produced products that are being stored in inventory. The good thing is that those products can then be bought back in production at a later time. So that they can be finish and shipped.

As an accountant it’s important to calculate the cost of the products that are in work in process inventory. It helps to give you an overview of things and help you to keep your expenses under control. Managers should work hard to prevent work in process products. Each day passed when those products are left half produced you are leaving money on the table.