Glossary
What are finished goods?
What counts as finished goods, how their cost is built up, and where they sit in stock and on the balance sheet.
Updated
In short
Finished goods are products that have completed manufacturing and are ready to sell. In SimpleERP finished goods enter stock when a work order completes, valued at the actual material and extra cost of that run.
Finished goods are products that have completed manufacturing and are ready to sell. Their cost is the raw material consumed plus labour and overheads of production. Until sold they are part of inventory on the balance sheet, next to raw materials, and when sold their cost becomes cost of goods sold. A product can be finished goods for one business and a raw material for another.
Finished goods: a worked example
Lakshmi Steel completes a work order for 50 Steel rack 4 shelf into the Main godown, which already held 32 racks at ₹3,170.
| Qty | Cost | Value | |
|---|---|---|---|
| Racks already on hand | 32 | ₹3,170 | ₹1,01,440 |
| Racks from the work order | +50 | ₹3,127.10 | ₹1,56,355 |
| Racks after completion | 82 | ₹3,143.84 | ₹2,57,795 |
FAQ
Questions, answered
What is the difference between finished goods and raw material?
Raw material is what you put into production, such as slotted angles and paint. Finished goods are what comes out, such as a steel rack. Both are inventory; one is waiting to be used, the other waiting to be sold.
Do traders have finished goods?
Traders usually call it stock in trade: goods bought ready to sell, such as office chairs bought from a maker. They are finished goods for the maker but simply trading stock for the trader. The accounting is the same.
How are finished goods valued?
At cost: materials consumed plus labour and production overheads, or at net realisable value if that is lower. In SimpleERP the cost per unit comes from each completed work order and blends into the product's weighted average.
What is work in progress?
Goods that are partly made at the date of the accounts. SimpleERP does not keep a separate work in progress value; materials stay in stock until a work order completes, so finish or split runs before a period ends.
Related
Keep reading
Raw material
What a manufacturer buys to turn into products: steel, paint, fasteners, packing. Held as inventory until consumed.
Read moreWork order
An instruction to make a quantity of a product from its BOM, which consumes components and adds finished goods on completion.
Read moreManufacturing
Bills of materials with scrap and cost roll-up, and work orders from plan to complete.
Read more
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