Finished Goods

Finished goods are the last stage of a manufacturer's inventory. Raw materials are transformed during production, passing through work in progress, and once complete, they become finished goods waiting in a warehouse or showroom.

Their value on the balance sheet is the total cost of making them: materials, labour and a share of production overheads. It is not their selling price. When they are sold, this cost moves to cost of goods sold on the income statement.

For example, a bicycle maker that has produced 200 bicycles at a cost of 250 each, but not yet sold them, has finished goods inventory of 50,000. If it sells them for 400 each, its gross profit on those sales would be 150 per bicycle.

For retailers and wholesalers, which buy products ready to sell, all their inventory is effectively finished goods, usually called merchandise. Watching finished goods levels helps businesses spot slowing sales or overproduction early.