The manufacturing industry presents a more complex picture of cost. Most of that complexity is due to the introduction of the other subset of cost of goods: cost of manufacturing. Cost of manufacturing has a number of components that contribute to the final cost of an individual product:
The key to understanding cost and the manufacturing process is in the state of the material that is being transformed. During the manufacturing process, materials are transformed by labor to become finished goods. Often a product goes through more than one stage during the process. Work in process is any intermediary state between direct material and finished good.
WIP also implies that cost (value) has been added to a product along the way. Ken Milani,1 professor ...