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What is work-in-progress in manufacturing and how do I measure it?
Work-in-progress (WIP) is the value of partly finished goods still in production, valued at the material, labour and overhead cost incurred so far. Measure it as opening WIP plus costs added, minus the cost of goods completed, per period.
It matters because WIP ties up cash, signals bottlenecks, and appears in the balance sheet.
Commonly misread:
- A rising WIP figure is read as busy production when it may mean jobs are stuck waiting for a bottleneck.
- Valuing WIP at full cost when it is only partly complete.
- Not tracking WIP age, so old jobs hide within the total.
Useful companions are WIP count by stage, average time in WIP, and the age of the oldest batch. If WIP is only counted at month-end, you will miss how it builds up during the month.
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