Process accounts for a single product with work in progress (WIP): introduction; WIP; terms used in WIP; types of valuation of WIP and statement cost format

1.1 Introduction

How do we prepare process accounts for a single product case where some units are complete and others are incomplete at the end of the production or financial period? You see, for the case of complete units, this is no problem to most of the learners. But for the case of incomplete units, it is not easy. In this article, we have made the work easy for you by first of all taking you through some discussion on some concepts commonly used in the case of work in progress

Work In Progress (WIP)

2.1 Introduction

It is only in an ideal situation where all materials are fully used to produce complete units of a product. But in reality, when production process starts, there are many cases where the producer will experience availability of some unused raw materials either in the beginning or at the end of the year or both. On the same breath, output can either be complete or partially finished.

2.2. Terms used in Work in Progress (WIP)

As a result of this incompleteness technicalities, the aspect of WIP is pivotal in this discussion. This article focuses on the process costing in an environment where there is Work in Progress. To achieve this objective, the following concepts have been well articulated for you as a learner to equip yourself in analyzing and solving the process costing at this higher level.

The following terms are commonly used in this thematic matter.

2.2.1 Equivalent Units 

Definition; Equivalent units is the corresponding degree of completion of Work in Progress (WIP) of a product at the end of a certain period of time. In other words, it is the number of incomplete units or quantities which carry the same value to a complete unit. It is also referred to as effective units.

Formula for Equivalent Units.



EU is Equivalent Units

X is the value of the percentage representing degree of completion.

WIP is the physical number of incomplete units of a product.

2.2.2 Logic behind Equivalent Units

Point 1: Direct raw materials which are also commonly referred to as introduced materials are the key inputs in production of a product. They are usually 100% used up at the end of the year.

Point 2: In addition to raw materials, there are other inputs applied or added on the raw materials which have got conversion abilities such as labor, direct expenses and overhead costs.

Point 3: Every complete unit produced, consumes;

100% of the raw materials,

100% of direct labor,

100% of direct expenses and

100% of factory overhead.

Point 4: At the end of the production period or end of the financial period the inputs in point 3 may not have been used to their full capacity (100%). Therefore, the producer has to determine the equivalent units in terms of percentage degree of completion as far as direct materials, direct labor, direct, direct expenses etc.

2.2.3 Total Equivalent Production

This is the summation of both physically complete and technically complete units at the end of the production. It is also referred to as the total effective production.


Equivalent or total effective production=Physically complete unit + Equivalent Units in WIP.

2.2.4 Cost per Unit


NB: Degree of completion as far as the individual inputs is concerned, may vary from one class of input to the other. Such that, for WIP, direct raw materials consumed may be 75% of the WIP, labor may be 60% of WIP etc.

2.2.5 Input Materials

Definition: Input materials are inputs introduced in a production process for the first time. Other materials are added on top of this one. When production starts in process one, this is the first materials introduced in this process also referred to as input material, or material 1.

Characteristics of Input Material.

i). It is the first material input introduced in the initial process.

ii) It is always 100% complete.

iii). The whole output of end of a process level, becomes the material input in the next process and it is always taken as 100% complete.

2.2.6 Additional Input Materials

Definition: Additional materials are inputs introduced in a production process after production process has been initiated. So, these other materials added on top of this one is material two or additional material inputs.

Characteristics of Additional Input Materials.

i). The materials are added as the name suggests to the already original materials in use.

ii). Additional materials can be either 100% or less than 100% completely used in WIP case. 

Valuation Of Work In Progress (WIP)

3.1 Introduction

This refers to the physical assigning of the monetary value of the closing WIP inventory. This objective can be achieved by use of different valuation methods which may include and not limited to;

a). Process accounts for a single product with work in progress (WIP) valued using FIFO method.

b). Process accounts for a single product with work in progress (WIP) valued using average method.

3.2 Statement of Cost Format

This is a statement that is used in cost accounting to express the cumulative cost as per inputs used, equivalent units and cost per unit. The format is as shown below.

About the Author - Dr Geoffrey Mbuva(PhD-Finance) is a lecturer of Finance and Accountancy at Kenyatta University, Kenya. He is an enthusiast of teaching and making accounting & research tutorials for his readers.