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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

QualificationExamRelationshipPeriod
ACCA MA Direct September 2026–June 2027
FIA FMA Direct September 2026–June 2027