Question

Explain the following inventory account and provide a real life example from three (3) different manufacturing companies: "Work-in-process inventory". Please only answer if you're absolutely clear on the instructions and the definitions, SHORT ANSWER (2-3 paragraphs) Please don't go overboard with information copied from another website or just write me one sentence.

Answer 1

In a typical manufacturing company there are typically 3 types of inventory: Raw Materials, Finished Goods and Work in Processs. Work in processs inv. is the one which is in the stage of conversion from being raw material to finished goods at the reporting date. In order to show correct values of inventory in the financial stateements we need to calculate WIP also as it is also an asset for us.

For example, in bakery company, cakes which are not yet fully prepared and are in certain stage of production like final baking or icing are considered as WIP.

In furniture company, chairs which are left to be assembled as per specs of customers and just have been logged till now shall be WIP.

A tailor shall take the suits unifinished as WIP based upon the material and labour he has put in the suits till the reporting date.

Hope this helps. !!