Finished goods inventory
Finished goods inventory is stock that has completed the full production process and is ready for sale, valued at full manufacturing cost. It becomes cost of goods sold when the items are sold to customers.
See it move
Finished goods inventory opens the period at €40,000. During the period, €150,000 of cost of goods completed flows in as production finishes, while €160,000 leaves as cost of goods sold when units are sold to customers, leaving a closing balance of €30,000 — the manufacturing cost still sitting in the warehouse, not yet expensed.
The formula
Variables
- finished goods balance at the start of the period (€)
- full manufacturing cost of units completed and transferred from work-in-progress (€)
- manufacturing cost of units sold to customers, expensed in the income statement (€)
Costs move from finished goods to the income statement only when units are sold, not when they are produced. This timing difference is the defining accounting feature of a manufacturing business.
Check yourself
A manufacturer completes 600 chairs at a full manufacturing cost of €45 each and sells 500 of them at €70 each during the period. Which statement correctly describes the accounting treatment for the unsold 100 chairs?