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Work-in-process inventory

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Definition of Work-in-process inventory

Work-in-process Inventory Image 1

Work-in-process inventory

inventory that has been partially converted through the
production process, but for which additional work must be completed before it can
be recorded as finished goods inventory.



Related Terms:

actual cost system

a valuation method that uses actual direct
material, direct labor, and overhead charges in determining
the cost of work in process inventory


applied overhead

the amount of overhead that has been assigned to work in process inventory as a result of productive activity; credits for this amount are to an overhead account


job order cost sheet

a source document that provides virtually
all the financial information about a particular job;
the set of all job order cost sheets for uncompleted jobs
composes the work in process inventory subsidiary ledger


material requisition form

a source document that indicates
the types and quantities of material to be placed into production
or used in performing a service; it causes materials
and its cost to be released from the Raw Material inventory
warehouse and sent to work in process inventory


normal cost system

a valuation method that uses actual
costs of direct material and direct labor in conjunction with
a predetermined overhead rate or rates in determining the
cost of work in process inventory



ABC inventory classification

A method for dividing inventory into classifications,
either by transaction volume or cost. Typically, category A includes that 20% of
inventory involving 60% of all costs or transactions, while category B includes
the next 20% of inventory involving 20% of all costs or transactions, and category
C includes the remaining 60% of inventory involving 20% of all costs or
transactions.


Average-Cost Inventory Method

The inventory cost-flow assumption that assigns the average
cost of beginning inventory and inventory purchases during a period to cost of goods sold and
ending inventory.


Work-in-process Inventory Image 2

Average inventory

The beginning inventory for a period, plus the amount at the end of
the period, divided by two. It is most commonly used in situations in which just
using the period-end inventory yields highly variable results, due to constant and
large changes in the inventory level.


Blanket inventory lien

A secured loan that gives the lender a lien against all the borrower's inventories.


Book inventory

The amount of money invested in inventory, as per a company’s
accounting records. It is comprised of the beginning inventory balance, plus the
cost of any receipts, less the cost of sold or scrapped inventory. It may be significantly
different from the actual on-hand inventory, if the two are not periodically
reconciled.


business process reengineering (BPR)

the process of combining information technology to create new and more effective
business processes to lower costs, eliminate unnecessary
work, upgrade customer service, and increase
speed to market


Contract Work Hours and Safety Standards Act

A federal Act requiring federal contractors to pay overtime for hours worked exceeding 40 per week.


Corporate processing float

The time that elapses between receipt of payment from a customer and the
depositing of the customer's check in the firm's bank account; the time required to process customer
payments.


cost-benefit analysis the analytical process of comparing the

relative costs and benefits that result from a specific course
of action (such as providing information or investing in a
project)


Days' sales in inventory ratio

The average number of days' worth of sales that is held in inventory.


Diffusion process

A conception of the way a stock's price changes that assumes that the price takes on all
intermediate values. dirty price. Related: full price


Discouraged Worker

An unemployed person who gives up looking for work and so is no longer counted as in the labor force.


Distribution inventory

inventory intended for shipment to customers, usually
comprised of finished goods and service items.



dollar days (of inventory)

a measurement of the value of inventory for the time that inventory is held


economically reworked

when the incremental revenue from the sale of reworked defective units is greater than
the incremental cost of the rework


Ending inventory

The dollar value or unit total of goods on hand at the end of an
accounting period.


FIFO method (of process costing)

the method of cost assignment that computes an average cost per equivalent
unit of production for the current period; keeps beginning
inventory units and costs separate from current period production
and costs


Finished goods inventory

Goods that have been completed by the manufacturing
process, or purchased in a complete form, but which have not yet been sold to
customers.


Finished goods inventory

Completed inventory items ready for shipment to
customers.


First-In, First-Out (FIFO) Inventory Method

The inventory cost-flow assumption that
assigns the earliest inventory acquisition costs to cost of goods sold. The most recent inventory
acquisition costs are assumed to remain in ending inventory.


Fluctuation inventory

Excess inventory kept on hand to provide a buffer against
forecasting errors.


Hedge inventory

Excess inventories kept on hand as a buffer against contingent
events.


In-house processing float

Refers to the time it takes the receiver of a check to process the payment and
deposit it in a bank for collection.



In-transit inventory

inventory currently situated between its shipment and delivery
locations.


Inactive inventory

Parts with no recent prior or forecasted usage.


Inventory

For companies: Raw materials, items available for sale or in the process of being made ready for
sale. They can be individually valued by several different means, including cost or current market value, and
collectively by FIFO, LIFO or other techniques. The lower value of alternatives is usually used to preclude
overstating earnings and assets.
For security firms: securities bought and held by a broker or dealer for resale.


Inventory

Goods bought or manufactured for resale but as yet unsold, comprising raw materials, work-in-progress and finished goods.


Inventory

The cost of the goods that a company has available for resale.


Inventory

Goods that a firm stores in anticipation of its later sale or use as an input.


Inventory

The cost of unsold goods that are held for sale in the ordinary course of business or
that will be used or consumed in the production of goods to be sold.


Inventory

Those items included categorized as either raw materials, work-inprocess,
or finished goods, and involved in either the creation of products or service
supplies for customers.


Inventory adjustment

A transaction used to adjust the book balance of an inventory
record to the amount actually on hand.


Inventory Days

The number of days it would take to sell the ending balance in inventory at the
average rate of cost of goods sold per day. Calculated by dividing inventory by cost of goods sold
per day, which is cost of goods sold divided by 365.


Inventory diversion

The redirection of parts or finished goods away from their intended
goal.


Inventory issue

A transaction used to record the reduction in inventory from a location,
because of its release for processing or transfer to another location.


Inventory loan

A secured short-term loan to purchase inventory. The three basic forms are a blanket
inventory lien, a trust receipt, and field warehousing financing.


Inventory receipt

The arrival of an inventory delivery from a supplier or other
company location.


Inventory returns

inventory returned from a customer for any reason. This receipt
is handled differently from a standard inventory receipt, typically into an inspection
area, from which it may be returned to stock, reworked, or scrapped.


inventory shrinkage

A term describing the loss of products from inventory
due to shoplifting by customers, employee theft, damaged and
spoiled products that are thrown away, and errors in recording the purchase
and sale of products. A business should make a physical count and
inspection of its inventory to determine this loss.


Inventory Shrinkage

A shortfall between inventory based on actual physical counts and inventory
based on book records. This shortfall may be due to such factors as theft, breakage, loss, or
poor recordkeeping.


Inventory turnover

The ratio of annual sales to average inventory which measures the speed that inventory
is produced and sold. Low turnover is an unhealthy sign, indicating excess stocks and/or poor sales.


INVENTORY TURNOVER

The number of times a company sold out and replaced its average stock of goods in a year. The formula is:
(Cost of goods sold) / (Average inventory (beginning inventory + ending)/2 )


Inventory turnover

The number of times per year that an entire inventory or a
subset thereof is used.


Inventory Turnover

Ratio of annual sales to inventory, which shows how many times the inventory of a firm is sold and replaced during an accounting period.


inventory turnover ratio

The cost-of-goods-sold expense for a given
period (usually one year) divided by the cost of inventories. The ratio
depends on how long products are held in stock on average before they
are sold. Managers should closely monitor this ratio.


Inventory Turnover Ratio

Provides a measure of how often a company's inventory is sold or
"turned over" during a period. It is calculated by dividing the sales
figure for the period by the book value of the inventory at the end of
the period.


inventory write-down

Refers to making an entry, usually at the close of a
period, to decrease the cost value of the inventories asset account in
order to recognize the lost value of products that cannot be sold at their
normal markups or will be sold below cost. A business compares the
recorded cost of products held in inventory against the sales value of the
products. Based on the lower-of-cost-or-market rule, an entry is made to
record the inventory write-down as an expense.


Ito process

Statistical assumptions about the behavior of security prices. For
details, see the book by Hull listed in the “Bibliography”.


joint process

a manufacturing process that simultaneously
produces more than one product line
joint product one of the primary outputs of a joint process;
each joint product individually has substantial revenuegenerating
ability


Just-in-time inventory systems

Systems that schedule materials/inventory to arrive exactly as they are
needed in the production process.


Last-In, First-Out (LIFO) Inventory Method

The inventory cost-flow assumption that assigns the most recent inventory acquisition costs to cost of goods sold. The earliest inventory
acquisition costs are assumed to remain in ending inventory.


Make-Work Project

A project, such as digging holes and filling them up again, that has no useful purpose other than to make work.


Maximum inventory

An inventory item’s budgeted maximum inventory level,
comprising its preset safety stock level and planned lot size.


MERCHANDISE INVENTORY

The value of the products that a retailing or wholesaling company intends to resell for a profit.
In a manufacturing business, inventories would include finished goods, goods in process, raw materials, and parts and components that will go into the end product.


Minimum inventory

An inventory item’s budgeted minimum inventory level.


modified FIFO method (of process costing)

the method of cost assignment that uses FIFO to compute a cost per
equivalent unit but, in transferring units from a department,
the costs of the beginning inventory units and the
units started and completed are combined and averaged


Moving average inventory method

An inventory costing methodology that calls for the re-calculation of the average cost of all parts in stock after every purchase.
Therefore, the moving average is the cost of all units subsequent to the latest purchase,
divided by their total cost.


multiprocess handling

the ability of a worker to monitor
and operate several (or all) machines in a manufacturing
cell or perform all steps of a specific task


Net inventory

The current inventory balance, less allocated or reserved items.


Net working capital

Current assets minus current liabilities. Often simply referred to as working capital.


net working capital

Current assets minus current liabilities.


network organization

a flexible organization structure that
establishes a working relationship among multiple entities,
usually to pursue a single function


Obsolete inventory

Parts not used in any current end product.


Periodic inventory

A physical inventory count taken on a repetitive basis.


Periodic inventory system

An inventory system in which the balance in the inventory account is adjusted for the units sold only at the end of the period.


Perpetual inventory

A system that continually tracks all additions to and deletions
from inventory, resulting in more accurate inventory records and a running total for
the cost of goods sold in each period.


Perpetual inventory

A manual or automated inventory tracking system in which
a new inventory balance is computed continuously whenever new transactions
occur.


Perpetual inventory system

An inventory system in which the balance in the inventory account is adjusted for the units sold each time a sale is made.


Personal Responsibility and Work Opportunity Reconciliation Act

A federal Act requiring the reporting of new hires into a national database.


Physical inventory

A manual count of the on-hand inventory.


Price discovery process

The process of determining the prices of the assets in the marketplace through the
interactions of buyers and sellers.


Process

A series of linked activities that result in a specific objective. For example, the
payroll process requires the calculation of hours worked, multiplication by hourly
rates, and the subtraction of taxes before the final objective is reached, which is the
printing of the paycheck.


process benchmarking

benchmarking that focuses on practices and how the best-in-class companies achieved their results


process complexity

an assessment about the number of processes through which a product flows


Process costing

A method of costing for continuous manufacture in which costs for an accounting compared are compared with production for the same period to determine a cost per unit produced.


Process costing

A costing methodology that arrives at an individual product cost through the calculation of average costs for large quantities of identical products.


process costing system

a method of accumulating and assigning costs to units of production in companies producing large quantities of homogeneous products;
it accumulates costs by cost component in each production department and assigns costs to units using equivalent units of production


Process flow production

A production configuration in which products are continually
manufactured with minimal pauses or queuing.


process map

a flowchart or diagram indicating every step
that goes into making a product or providing a service


process productivity

the total units produced during a period
using value-added processing time


process quality yield

the proportion of good units that resulted from the activities expended


processing time

the actual time consumed performing the
functions necessary to manufacture a product


product- (or process-) level cost

a cost that is caused by the development, production, or acquisition of specific products or services


Purchased In-Process Research and Development

Unfinished research and development that is acquired from another firm.


Raw materials inventory

The total cost of all component parts currently in stock that
have not yet been used in work-in-process or finished goods production.


Reconciling inventory

The process of comparing book to actual inventory balances,
and adjusting for the difference in the book records.


Reprocessed material

Material that has been reworked and returned to stock.


Rework

Refers to a product that does not meet a company’s minimum quality standards,
but which is then repaired in order to meet those standards.


Rework

The refurbishment of a faulty part.


Seasonal inventory

Very high inventory levels built up in anticipation of large
seasonal sales.


statistical process control (SPC)

the use of control techniques that are based on the theory that a process has natural variations in it over time, but uncommon variations
are typically the points at which the process produces "errors", which can be defective goods or poor service


strict FIFO method (of process costing)

the method of cost assignment that uses FIFO to compute a cost per equivalent unit and, in transferring units from a department, keeps the
cost of the beginning units separate from the cost of the
units started and completed during the current period


Surplus inventory

Parts for which the on-hand quantity exceeds forecasted
requirements.


vendor-managed inventory

a streamlined system of inventory
acquisition and management by which a supplier can
be empowered to monitor EDI inventory levels and provide
its customer company a proposed e-order and subsequent
shipment after electronic acceptance



 

 

 

 

 

 

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