What is Finished Goods Inventory and How to Calculate it with QuickBooks Finished Goods Calculator

Most manufacturing operations involve transforming raw materials into finished goods. During this process, inventory goes through multiple stages of manufacturing. Categorizing inventory by its various stages helps manage the production process and supply chain, and gives an accurate account of total inventory.

Knowing how to calculate your finished goods inventory is critical for deriving accurate accounting and inventory levels. In this article you will learn how to calculate finished goods inventory to ensure efficient inventory management.

What is Finished Goods Inventory?

Finished goods are the final products that have completed the manufacturing or production process and are ready to be sold to customers. These goods have undergone all the necessary stages of production, including processing, assembly, and packaging, and are in their final form, ready for consumption.

Finished goods can vary across industries, including electronics, clothing, furniture, automobiles, household appliances, food products, etc. Businesses transform raw materials or components into a finished product through various stages of value addition. Finished goods are the end result of this manufacturing or production process.

As most businesses only carry this type of inventory, the definition of finished goods may vary between manufacturers, retailers, and distributors.

For example, a manufacturing company that produces bottles will see it as a finished product and categorize it as a finished good. Its retailer customers, however, may be using the bottle to package their products and consider it packaging materials inventory. 

Finished Goods Calculator

As a business, it’s essential to calculate your finished goods to keep track of the quantity and value of your inventory. It’s crucial for managing your stock levels and ensuring that enough of your finished products are available to meet demand. 

How to Calculate Finished Goods 

Finished goods accounting doesn’t have to be complicated. Here’s everything you need to know about finished goods inventory and how to calculate it. 

Finished Goods Inventory Formula

Here is the total finished goods inventory formula: 

Finished Goods Inventory = Beginning Finished Goods Inventory + Cost of Goods Manufactured (COGM) - Cost of Goods Sold (COGS)

How to Use QuickBooks Finished Goods Calculator

Using our finished goods inventory calculator is straightforward. To calculate the value of finished goods inventory, you need to consider the cost of the finished goods produced that have not yet been sold. Simply enter the beginning finished goods inventory and add your cost of goods manufactured minus your cost of goods sold, which can be calculated using our COGS calculator. With our automatic finished goods calculation, you’ll then receive your finished goods total.

Below is a step-by-step process on how to calculate finished goods inventory with our finished goods calculator.

1. Determine the cost of goods manufactured (COGM) by calculating the total cost of goods manufactured during a specific period. This includes the direct materials, direct labor, and manufacturing overhead costs incurred in the production process. The COGM represents the total costs to produce the finished goods.
2. Determine the beginning inventory by identifying the value of the finished goods inventory available at the beginning of the period. You carry this value over from the previous accounting period, and you can obtain this from your company's records.
3. Add the COGM calculated in Step 1 to the value of the beginning inventory determined in Step 2. This calculation gives you the total cost of finished goods available for sale or use during the period.
4. Determine the ending inventory by identifying the value of finished goods inventory that remains unsold or unused at the end of the period. You can determine this through physical counts, records, or inventory management systems.
5. Subtract the value of the ending inventory determined in Step 4 from the total cost of finished goods available for sale or use. 

The resulting figure represents the value of the finished goods inventory at the end of the period.

How Quickbooks Can Help

Keeping track of your finished goods is essential for effectively tracking your inventory. QuickBooks inventory management software can help you create inventory items for your finished goods, set their quantities, and track movements. Automatically track the addition or sale of finished goods with our powerful accounting software to help maintain an accurate inventory count and value. 

Our Inventory Management Software also automatically calculates COGS based on your inventory transactions. It tracks the cost of your finished goods sold by matching the inventory item's cost with the sales transaction, helping you stay on top of your finished goods calculations. 

Sign up for a 30-day free trial today, or check our pricing to learn more about how QuickBooks can help you effectively manage your inventory.