Joomla TemplatesBest Web HostingBest Joomla Hosting
Home Work in Progress

Articles

Work in Progress

Work in progress refers to something that is incomplete. A process has been started but has not yet been completed. It can refer to either items of good which are being manufactured but have not been completed, or property still under construction. Either remains work in progress until the production process or the construction is completed.

Work in progress is valued separately as stock of work in progress as it does not belong to the stock of raw materials or finished good stock. Manufacturers having higher volume of work in progress are those whose production processes take longer time to complete their products.

Items in work in progress have not been completed and so they cannot be sold. They are therefore reported in the manufacturing account and not in the trading account where only finished goods are shown. On the balance sheet and in other financial statements, work in progress is grouped with raw materials stock and finished goods stock under current assets.

In valuation, work in progress is stated at cost or at net realizable value. The net realizable value is the expected selling price less the expenses needed before completion of sale. Using the concept of prudence, work in progress should not be over-valued otherwise the profits will be overstated. If the net realizable value is lower than the cost, then the net realizable value is to be taken for the final accounts.


Calculation of work in progress
The cost of direct materials, direct labour and direct expenses that are incurred in the work-in-progress units can be ascertained by estimating the percentage of completion of the units.


Example:

Let assume:
1.  the direct costs incurred in the production of each completed unit is as follow: materials $60, labour $40 and expenses $10;
2.  the units in work in progress at year end are 90% complete concerning materials, 50% completed concerning labour, and 60% overhead expenses



Direct Costs


Material

Labour

Overhead

Total
Production cost of each finished unit ($)

60

40

60

160
Percentage of completion (%)

90

50

60

-
Production cost of each WIP unit ($)

54

20

36

110

From the above calculation, the total direct costs incurred for each work-in-progress unit is valued at $110.
If the year-end work in progress is 120 units, the total value of work in progress is: 120 units x $110 = $13,200.



Direct Costs


Material

Labour

Overhead

Total
Production cost of each finished unit ($)

60

40

60

160
Percentage of completion (%)

90

50

60

-
Production cost of each WIP unit ($)

54

20

36

110
Year-end work in progress (units)

120

120

120

120
Total cost of work in progress

6,480

2,400

4,320

13,200


Calculation for manufacturing account
Let’s assume the production costs incurred last year on goods not completed last year, but completed this year (work in progress) is $11,000; and the total production costs during the year is $75,000.


Manufacturing Account


$
Total production costs for the year
75,000
Add: Opening work in progress
11,000



86,000
Less: Closing work in progress
13,200


Production costs on finished goods this year
72,800



Last Updated (Wednesday, 27 October 2010 19:56)