How do you calculate working capital tied up in WIP?

Multiply days in process by the daily WIP cost burden and by your cost-of-capital percentage, then add the handling and storage cost. With 22 days, $9,500/day, 9% cost of capital, and a $3,000 adder you get $21,810.

What is the carrying cost per day of WIP?

Divide the total tied-up cost by days in process. In the worked example, $21,810 over 22 days is about $991 per day of throughput time.

Why does work-in-process tie up cash?

Material, labor, and overhead are already paid the moment a job releases, but you cannot invoice until it ships. The longer it sits on the floor, the longer that cash is unavailable and the more cost-of-capital it accrues.

Is WIP working capital good or bad?

Some WIP is unavoidable, but excess WIP is almost always a symptom of long lead times, large batches, or bottlenecks. Lean plants drive it down because the freed cash and shorter lead times outweigh the comfort of a buffer.

How do I reduce working capital tied in WIP?

Cut days in process. Smaller batches, single-piece flow, balancing the line to the constraint, and supermarket pull systems all shorten throughput time, which directly shrinks the tied-up cash in this calculation.

What cost of capital should I use?

Use your weighted average cost of capital or hurdle rate; many mid-size manufacturers land between 8% and 15%. The example uses 9%.

Manufacturing Cost Accounting & Finance calculator

Working Capital Tied in WIP Calculator

Working capital tied in WIP measures the real cash a manufacturer locks up while parts sit between raw material release and finished-goods receipt. Every day a job spends on the floor, you have already paid for material, labor, and burden but cannot bill the customer, so that value carries a cost-of-capital charge plus the expense of moving and storing the partly finished inventory. Plant controllers, lean champions, and operations managers use this figure to justify cycle-time reduction, smaller batch sizes, and pull systems. It is one of the clearest ways to put a dollar value on slow throughput.

What this calculator does

Estimates the financing cost of cash locked in work-in-process before it bills out.
Use it to justify cycle-time reduction by pricing the cash trapped in a long WIP queue.
It computes the carrying cost of cash locked in work-in-process given days in process, the daily WIP cost burden, your cost of capital, and a fixed handling and storage adder.

Formula used

Tied-up cost = days in process x daily WIP burden x cost of capital% + handling adder
Carrying cost per day = total tied-up cost / days in process

Inputs explained

Days in process (throughput time):
Daily WIP cost burden:
Cost of capital:
WIP handling and storage adder:

How to use the result

Use it when building a lean business case, sizing the savings from cutting cycle time or batch size, or quantifying the cash impact of a bottleneck.
It treats the daily WIP burden as flat across the whole process; in reality value accumulates as parts move downstream, so early-stage days carry less cash than near-finished days.

Current U.S. benchmarks

As of 2026-07-02, the U.S. prime lending rate is 6.75% (Federal Reserve via FRED). Equipment loans and lines of credit typically price at prime plus a spread, so use your actual borrowing rate when you have it.

Common questions

How do you calculate working capital tied up in WIP? Multiply days in process by the daily WIP cost burden and by your cost-of-capital percentage, then add the handling and storage cost. With 22 days, $9,500/day, 9% cost of capital, and a $3,000 adder you get $21,810.
What is the carrying cost per day of WIP? Divide the total tied-up cost by days in process. In the worked example, $21,810 over 22 days is about $991 per day of throughput time.
Why does work-in-process tie up cash? Material, labor, and overhead are already paid the moment a job releases, but you cannot invoice until it ships. The longer it sits on the floor, the longer that cash is unavailable and the more cost-of-capital it accrues.
Is WIP working capital good or bad? Some WIP is unavoidable, but excess WIP is almost always a symptom of long lead times, large batches, or bottlenecks. Lean plants drive it down because the freed cash and shorter lead times outweigh the comfort of a buffer.
How do I reduce working capital tied in WIP? Cut days in process. Smaller batches, single-piece flow, balancing the line to the constraint, and supermarket pull systems all shorten throughput time, which directly shrinks the tied-up cash in this calculation.

Last reviewed 2026-05-12.