In one sentenceUnits whose manufacture has started but is not complete at the statement date; their cost appears within inventory in the statement of financial position.
Simply put
A factory has three types of inventory: raw materials not yet used, work in process halfway through, and finished goods ready for sale.
The cost of work in process includes the materials, labor and overhead spent on it so far.
Worked example
A furniture factory started the year with work in process of 20,000 SAR, incurred manufacturing costs of 150,000 SAR during it, and had work in process of 30,000 SAR at year-end.
Opening work in process20,000 SAR
+ Production costs for the period150,000 SAR
− Closing work in process30,000 SAR
Cost of finished goods = 20,000 + 150,000 − 30,000140,000 SAR
Formula: Opening work in process + Period costs − Closing work in process
Don't confuse it with
Cost of goods soldThe cost of finished goods is not the cost of sales: you must deduct the finished goods that remain unsold.