A finished product It is any good that has completed its manufacturing process, but has not yet been sold or distributed to the end customer. The term applies to goods that have been manufactured or processed to add value to them. This is the last stage in the processing of the goods. They are stored in it and are ready to be consumed or distributed.
No processing on the part of the seller is required in terms of the product after this stage. However, it may be that the seller's finished product becomes the buyer's raw material..
Therefore, the term is relative. The finished products of a seller can become raw materials of the buyer. For example, a flour mill produces flour.
To do this, it buys grains as raw materials that are ground and packaged, and then sold to bakeries as finished products. For bakeries, flour is a raw material used to create their finished goods, bread and cakes..
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A good purchased as a raw material is used to manufacture a product. A product that is only partially completed during the manufacturing process is called a “work in progress”.
On the contrary, when the good is completed in terms of its manufacture, but has not yet been sold or distributed to an end customer, it is called a finished product..
The cost of finished goods is equal to the amount of inventory transferred from the work-in-progress account to the finished goods account at the end of a period.
- A company with a fast delivery strategy may have to keep a large amount of finished goods inventory in stock..
- A company may want to minimize its finished product inventory if the inventory has a short useful life, and is therefore at risk of spoilage or obsolescence..
- Finished products are considered to have significant collateral value to a lender, as they can be sold without delay to settle a debt..
A finished product is ready for sale. However, it has yet to be sold. After a product has been sold, it is considered merchandise.
This means that once it has been decided to buy a finished product in the store and it has been reviewed, it is no longer called this. He has bought it, and now it is merchandise.
This technicality is given for accounting purposes. By differentiating between unsold finished products and merchandise, companies can determine how much inventory they have left, compared to how much profit they made from selling the product..
Finished goods inventory is the third group of inventory owned by a manufacturer and consists of goods that are ready for sale..
These products are completely finished, made through the production process, and ready for consumers to purchase..
Within manufacturing, there are three classes of inventory, arranged chronologically according to the production process:
- Raw Materials.
- Work in progress.
- Finished products.
When a company decides to manufacture a product, it must order the basic stock necessary to manufacture it. This material can be for example steel bars, metal sheets or plastic parts, anything in its original form. This stock is classified as raw material inventory.
These raw materials are transformed or assembled through the assembly process, which can take days or weeks. Meanwhile, these goods are transferred from the raw materials account to the work-in-process inventory account..
Once products have passed through the entire assembly line and are fully ready for sale, they are transferred from the work-in-progress account to the finished goods inventory account..
As you can see, this process allows a manufacturer to keep track of how much inventory it has at any stage of the production process..
At the end of a period, these three inventory categories are generally itemized separately on the balance sheet, so investors and creditors can understand the value of the inventory, rather than having a consolidated total..
Finished goods warehouse manages and collects finished goods arriving from production until they are delivered to customers.
During the acceptance of the created products, their quality is verified and the accepted quantity is reported to the automated system..
Then the units to be delivered of the finished products are packed, these units are composed and the packages already completed are stored in the warehouse of completed goods..
The packaging function creates the packages ready to be transported, from the goods that arrive from the production.
The composition function organizes the products completed and wrapped during production into units to deliver to customers, providing them with individual identification for future traceability.
The composition of these units can take place in pallets organized by orders, by customers, by destinations, etc..
The costs of handling finished products in the warehouse are called warehousing costs..
An aggressive market penetration strategy depends on the immediate availability of the inventory of finished products in the nearest warehouse so that the good can be available in the short term, in terms of delivery time, in the points of sale of the city.
Any unavailability will lead to a drop in market sales. Therefore, keeping inventories in warehouses becomes a necessity.
The cost of a finished product is the sum of the costs of all the resources consumed in its manufacturing process..
It is classified into three categories: direct materials cost, direct labor cost, and manufacturing overhead..
They are the raw materials that become the finished product. Manufacturing adds value to them by applying a set of operations to create a finished product.
It is the cost of workers that can be easily identified with the production unit. The type of labor considered direct labor cost are the workers who participate directly in a production line.
They are any manufacturing cost that is not a direct materials cost or direct labor cost. Include all charges that support you in manufacturing.
It is the cost associated with workers as supervisors and personnel who handle the materials, not directly involved in the production.
Cost associated with consumables such as lubricants, greases and water, not used as raw materials.
Includes depreciation of machinery, land rental, property insurance, electricity, or any expenses that keep the factory operating.
It is calculated by adding the manufacturing costs. This includes all direct materials, direct labor, and factory overhead..
This value is added to the beginning inventory of finished products, and the ending inventory of products in process for the period is subtracted, thus leaving the cost of finished products for that period..
Suppose furniture maker Steelcase had $ 100,000 of finished goods inventory at the beginning of the period. During the period, it spent $ 50,000 on furniture materials, $ 125,000 on workers' wages, and $ 65,000 on rent and services..
After calculating equivalent units of production, managers determined that the ending work-in-process inventory was $ 75,000..
Therefore, the total cost of finished goods for the period would be $ 265,000, resulting from: $ 100,000 + ($ 50,000 + $ 125,000 + $ 65,000) - $ 75,000.
This means that Steelcase was able to finish furniture worth $ 265,000 during the period..
Food products are finished products. You can have processed foods and other unprocessed foods, but both belong to this category.
Raw foods are grown and then prepared for sale. Fruits and vegetables are collected and cleaned, thus being ready to be eaten or cooked..
The same goes for meat. It is cut and packed to be ready to be used.
The eggs are collected, cleaned and packed in cardboard boxes. It is known that when these foods are bought, the farmer has done all the necessary processing so that they are ready to be sold.
Unprocessed foods go through little or no change before being considered ready to sell.
When a food is processed, they end up turning into other types of finished products, such as cereals, ready-to-eat canned tuna, French fries, sauces, and many other items found in the aisles of a supermarket..
An industrial products company produces aircraft parts. Customers often place rush orders that are required immediately. The company manufactures thousands of different parts in small production batches, stocking them until a customer order is received.
This allows the company to reduce order delivery time, but generates a large inventory of finished products..
An electronics company makes cameras in small batches based on sales forecasts. Every effort is made to minimize inventory because cameras are frequently upgraded and older models lose value quickly.
As such, the company's finished goods inventory is small, with an average inventory age of less than three days..
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