Work in process (WIP) inventory refers to materials that are waiting to be assembled and sold. WIP inventory includes the cost of raw materials, labor, and overhead costs needed to manufacture a finished product.
Since WIP inventory takes up space and can’t be sold for a profit, it’s generally a best practice for product-based businesses to minimize the amount of WIP inventory they have on hand.
In this article, we’ll cover the importance of classifying WIP inventory, how to calculate it, and how you can use the insights to optimize your inventory management. But first, let’s start with the basics.