Work in Process (Work in Progress) Inventory

Category

Balance Sheet

Units

Currency

US-GAAP elements

InventoryWorkInProcessInventoryWorkInProcessNetOfReserves

Reference

Regulation S-X Rule 5-02.6 (Inventories); ASC 330

Source

Reported in SEC EDGAR filings (US-GAAP XBRL taxonomy)

Work in process (also called work in progress) is inventory that a manufacturer has started producing but not yet finished. Its cost includes the raw materials already put into production plus the direct labor and manufacturing overhead applied to those units so far.

Work in process is the middle stage of manufacturing inventory. It begins when raw materials enter production and ends when the units are complete and move into finished goods. The term "work in progress" is often used for the same thing.

Regulation S-X Rule 5-02.6 asks companies to disclose, where practicable, the amounts of their major inventory classes, listing finished goods, work in process, raw materials, supplies, and inventoried costs on long-term contracts. The breakdown is usually in an inventory footnote. In XBRL the class is tagged InventoryWorkInProcess when stated before valuation and LIFO reserves, or InventoryWorkInProcessNetOfReserves when stated after them. Retailers and distributors buying finished products for resale typically have none.

Valuation follows ASC 330. Work in process is carried at cost, with overhead allocated on the basis of normal production capacity, and written down if cost exceeds what the company expects to recover when the goods are finished and sold. Measuring it requires estimates of how far along each unit is, so it depends more on judgment than raw materials, which are carried at purchase cost. Companies with long production cycles, such as aircraft, shipbuilding, or large equipment makers, can carry very large work-in-process balances and may classify them as current even when production runs longer than a year, because that is their operating cycle. Costs on long-term contracts are often shown as their own inventory class or as contract assets.

Analysts read work in process alongside the other classes. A rising balance can reflect a growing order book or production bottlenecks, such as parts shortages, that leave units stuck partway through. Inventory disclosures for companies using LIFO may show the classes on another cost basis with the LIFO reserve deducted in total, so the class amounts may not sum directly to the balance sheet figure.