Finished goods
Finished goods are completed products held before sale or delivery. Their assigned cost depends on the costing basis: absorption production cost includes fixed production overhead, while marginal production cost excludes it. Transferring a completed unit from work in progress to finished goods is not a sale and does not by itself create revenue. Cost of units sold is released from inventory when recognised in the period’s sales calculation.
Worked example
A factory finishes 500 units but sells only 420. The remaining 80 units are finished goods, valued on the relevant inventory-cost basis.
Common mistake
Do not calculate revenue using units produced when some are still unsold, or include selling expense in production inventory cost.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | MA | Direct | September 2026–June 2027 |
| FIA | FMA | Direct | September 2026–June 2027 |
