In this guide
Costing Partly Machined Components
Work in progress is the hardest thing on a factory floor to value, because its value is a quantity multiplied by a stage of completion, and both halves are open to argument. The quantity is contestable because partly machined components sit between operations, in transit trolleys, at inspection and at rework, and a count taken while the line runs will miss some of them. The stage of completion is contestable because it is an assessment, not a measurement: a component that has been through four of seven operations has not absorbed four-sevenths of the cost if the expensive operation is the sixth. An auditor tests both halves separately. Quantity is tested by counting at a moment the line is genuinely still and by tracing route cards. Completion is tested by taking the stage recorded, tracing it to the operations actually stamped on the route card, and recomputing the cost absorbed from the standard rather than accepting a percentage.
Identifying Stage of Completion
Establishing how far through the process a part has travelled is the first half of valuing work in progress, and it is an assessment rather than a measurement. Operation-wise routing is what makes it testable. A route card travelling with the batch lists the operations in sequence and is stamped as each is completed, so the stage is evidenced by which stamps are present rather than by somebody's estimate. A part with four of seven operations stamped has a defensible position; a part with no card has an assertion attached to it. Physical indicators of stage support the routing where they exist. A component that has been drilled but not ground looks different from one that has been ground, and an auditor can corroborate the card against the part in hand for operations that leave a visible signature. Many do not, which is why the card matters. Why shop-floor judgement varies is worth acknowledging rather than treating as carelessness. Asked to estimate completion, a supervisor who knows the expensive operation is still to come will answer differently from one thinking in terms of operations counted, and both answers are honest. Only the routing removes the variation.
Absorbing Cost Into WIP
The second half of the valuation is how much cost has actually been absorbed by the stage reached, and the common error is proportionality. Material, labour and overhead enter at different points: material is frequently issued in full at the first operation, while labour and overhead accumulate operation by operation, so a part four operations into seven has usually absorbed all of its material and only part of its conversion cost. Applying a single completion percentage to the full standard cost therefore misstates it in both directions depending on where the expensive operations sit. Standard costing against actual is the next question. Most manufacturers value work in progress at standard, which is workable and testable provided the standards are current, and the audit test is whether the standards have been revised as material prices and process times changed. Standards set once and carried for years understate or overstate every unit valued on them. Over- and under-absorption is the consequence that reaches the accounts. Where actual overheads differ from those absorbed at standard, the difference has to be dealt with, and absorbing it into closing work in progress rather than to the period is how an unprofitable period is quietly deferred.
WIP That Is Not Moving
Work in progress is supposed to be transient, so anything static in it deserves attention. Parts held for rework are the largest category. A batch rejected at inspection leaves the flow, enters a rework area, and has no deadline attached to it, so it accumulates cost without progressing and without anybody deciding what to do about it. Rework that has been pending for months is not work in progress in any meaningful sense; it is a valuation question that nobody has answered. Obsolete part numbers still in work in progress are the second category and the harder one. Where a product has been discontinued or a design superseded, partly finished components for it will never be completed, and they sit in the balance at accumulated cost because the system has no mechanism to notice that their destination no longer exists. Ageing analysis of the balance is what surfaces both. Work in progress aged by the date the batch entered the process, rather than reported as a single figure, immediately separates the material genuinely flowing through from the material that stopped, and the second population is where the write-downs are.
Evidence for a WIP Figure
Three records together support a work-in-progress figure, and none of them is sufficient alone. Routing records and operation completion come first: the route card travelling with each batch shows which operations have been stamped as complete, and that stamp is the evidence for the stage of completion claimed. A stage asserted without a stamped route card is an estimate, and estimates aggregate into a figure nobody can test. Costing sheets are second, showing what cost has been absorbed at each operation and tying to the general ledger, so that the value attached to a partly complete unit can be traced to the cost accounting rather than derived from a percentage applied to the finished cost. The percentage approach fails whenever the expensive operations are not evenly distributed through the routing. Third is the physical count reconciled to the work-in-progress register, performed with the line genuinely still, and covering the material sitting between operations, in transit trolleys, at inspection and at rework. Those four locations hold the units a count taken during production will miss, and they are where the reconciliation usually breaks.
Preparing WIP for an Audit
Freeze the shop floor for the count, genuinely rather than nominally. Work in progress moves between operations, and a count taken while machines are running will miss material in transit, at inspection and at rework, which are precisely the locations where the contestable quantities sit. The freeze does not need to be long, but it needs to be real, and agreeing the window with production well in advance is the only way that happens. A shutdown weekend, a shift change or a planned maintenance window are the usual candidates. Clear rework and scrap before the count rather than during it. Material sitting in a rework corner for months is neither work in progress at full cost nor finished goods, and deciding what it is while a counting team waits is the slowest possible moment to have that conversation. Quantify it, decide its treatment, and record it before the count date. A specialist counter is worth bringing in where routings are long, where stage of completion carries material value, or where a lender relies on the figure, and stock audit for auto component manufacturers is built around that population.
