Work in progress – A quick guide

Business owners must have up to date information to manage the business.
A large number of companies have inaccurate accounts because they do not adjust for work in progress (WIP).

So what is Work in progress?

It is work that has been done but not yet invoiced. (It is not the work outstanding that has yet to be invoiced that is the order book).
There are often quick ways of doing this to the accuracy required without much effort. The method depends on the industry and the cycle time. The key is a speedy routine.
One example:
One firm had a 3 week cycle time from starting to make, to completion. The gross margin was 30%. So at the end of the second week after the end of the month when adjusting for WIP to produce the accounts we looked at what was invoiced last week i.e. the first week of the next month and said that was 75% complete, then what had been invoiced this week i.e. the second week of the month as said it was 50% complete and what was expected to be completed next week and called that 25% complete. We then said half the gross margin related to manufacturing overhead and adjust by half of 15% to achieve our answer. This was done by using spreadsheet to automate it. Then we had WIP.
This was excellent and accurate enough and removed the need of going out on the shop-floor and counting.