How to Calculate Finished Goods Inventory & Why it’s Important for Business

While maintaining a web based business is requesting, it is more vital to oversee stock.

At the point when you grow, it becomes challenging to monitor all the stock accessible for your clients. Having stock parted across multiple fulfilment centres makes it more challenging to follow. To make it easier, e-commerce business owners use finished goods inventory formulas. Keep perusing this blog to figure out how to compute completed products stock and why it is critical.

What Is Meant By Finished Goods Inventory?

Finished goods inventory is everything a seller has ready to sell and ship. The seller uses a formula to determine finished goods’ worth.

What’s considered “finished goods” can change depending on who’s talking. For example, a factory might make cotton or silk, which they consider finished goods. However, a clothing store might buy cotton or silk to make clothes, which they consider their finished goods.

Finished Goods Inventory Abbreviations

In the event that you’re befuddled about the shortenings we’re utilizing for completed merchandise stock, coming up next is a cheat sheet to take care of you:

●     COGM: This represents Cost of Merchandise Fabricated. It’s the complete expense to make the items that are presently prepared to sell.

●     COGM: This represents Cost of Products Sold. It’s the complete expense of the items offered to clients.

●     WIP: This stands for Work-in-Process. It refers to products that are still being made and still need to be finished.

Four Steps To Calculate Finished Goods Inventory (Formula + Example)

Are you thinking about figuring out the finished goods inventory? Coming up next is the recipe to ascertain the completed products stock:

Finished Goods Inventory Formula = (COGM – COGS) + Value of Previous Year’s Finished Goods

Thus, to utilize the recipe referenced above, you will initially need to compute the expense of products fabricated and the expense of merchandise sold. By utilizing the accompanying equation, you will actually want to track down COGM and Machine gear-pieces and, at last, completed merchandise finishing stock:

COGM = (Starting WIP Stock + Absolute Assembling Cost) – Finishing WIP Stock

Pinions = (Starting Stock + Buys During the Period) − Finishing stock

Let’s say your brand makes and sells customized t-shirts. By following the four steps calculations below, you will be able to know the finished goods inventory:

Choose The Time Frame

It would help if you decided on the time frame to calculate the finished goods inventory accurately. You will have to calculate for all your formulas in that same time frame.

Collect The Crucial Data

So, to use all three formulas, you must have the necessary information. Let’s say you went through your business records and got to know that:

Beginning WIP Inventory = $750

Ending WIP Inventory = $175

Total Manufacturing Cost = $425

Beginning Inventory = $250

Ending Inventory = $200

Purchases During the Period = $550

Value of Previous Year’s Finished Goods = $100

Calculate COGM and COGS

Now, put the data you gathered into the formula for COGM. For example:

COGM = (Beginning WIP Inventory + Total Manufacturing Cost) – Ending WIP Inventory

COGM = ($750 + $425) – $175

COGM = $1,175 – $175

COGM = $1,000

Now, do likewise for COGS:

Machine gear-pieces = (Starting Stock + Buys During the Period) − Finishing stock

COGS = ($250 + $550) – $200

COGS = $800 – $200

COGS = $600

Calculate Finished Goods Inventory

You must be wondering “how to calculate finished goods inventory”. Well, you will have to put the formula results of COGM and COGS and the previous time period’s finished goods date value into the finished goods inventory equation. For example:

●     Completed Merchandise Stock Recipe = (COGM – Gear-teeth) + Worth of Earlier Year’s Done Products

●     Completed Merchandise Stock Recipe = ($1,000 – $600) + $100

●     Completed Merchandise Stock Recipe = $400 + $100

●     Finished Goods Inventory Formula = $500

You can see that from our example, your company’s finished goods inventory would be $500 for the last quarter.

Why Is The Finished Goods Inventory Formula Crucial?

The following are how the ending finished goods inventory formula can help you and your business:

Records The Amount Of Current Assets

A minor mix-up can prompt an IRS review in your stock bookkeeping process. Utilizing the completed merchandise stock equation, you can follow incomplete products, work underway, stock, and creation stock. It will permit you to ensure that your bookkeeping is right.

Helps In Financial Budgeting 

When you know your finished goods inventory, you make better financial budgeting.

Optimises Inventory Management Processes

Making a production network work better means tracking down ways of making it smoother and quicker. One method for doing this is by knowing precisely exact thing goes into making an item and the amount it costs. By understanding this, organizations can figure out where to set aside cash and make things run all the more easily.

For example, they could see astounding opportunities to use machines as opposed to people for explicit tasks or find approaches to making their workers more capable. For the most part, it’s connected to finding approaches to making the whole course of making and conveying things work better and cost less.

Reduces Waste Of Resources

If you know the optimal inventory levels for your business, you can save money. It would help if you only stored what’s needed instead of spending a lot of your pennies on warehousing, finished products, and excessive raw materials.

Minimises Stockouts

At the point when items are unavailable or on delay purchase, clients need to stand by longer to get what they need, which can disappoint. Once in a while, they could try and drop their request due to the deferral. Notwithstanding, with the completed stock recipe, associations can figure out definitively how much a thing they need to have to avoid running out. Thusly, they can keep their racks provided and their clients ecstatic. It’s like knowing definitively how much food you truly need for a party so you don’t run out somewhat through.

How Can Prolog Fulfilment Help Improve Finished Goods Inventory Management?

Prolog Satisfaction can deal with your satisfaction and stock stockpiling, so you don’t need to stress over it. They provide order 3PL fulfilment services and simplify inventory auditing and management since they use inventory management software to help you run your business.

They understand that as your business scales higher, you will require an automatic way to monitor the inventory levels in real-time. They do so using their software, which keeps track of inventory levels.

Prolog Fulfilment allows you to set and receive reorder point notifications automatically so that it can prevent stockout. Its analytic tool collects crucial data, making it easy for you to understand what to stock, when, and other important decisions.

They help you to distribute your inventory strategically across multiple fulfilment centres.


Calculating finished goods inventory is essential for your business, significantly when scaling to a higher level. Prolog Fulfilment is the best when it comes to automating your order fulfilment process so that it can be hassle-free and you can spend your time in other essential areas.


What Type Of Account Is Finished Goods Inventory?

Completed merchandise stock is a kind of record where we monitor the completely prepared available to be purchased items. It resembles a storage facility for every one of the finished things and hanging tight for clients. At the point when you take a gander at your organization’s monetary record, you’ll find the completed merchandise stock recorded among your momentary resources. It implies it’s important for the things your organization possesses that can rapidly be transformed into cash soon. In straightforward terms, completed merchandise stock is an extravagant approach to saying the items you’ve made are prepared to sell.

How Do You Record Finished Goods Inventory?

Completed products stock can be recorded on your monetary record as an ongoing resource, meaning it’s something your organization possesses that can be changed over into cash soon. However, tracking and recording the value of finished goods inventory separately over time is also important. It helps you with understanding how much your resources are confined in these completed things and licenses you to choose informed decisions about creation, bargains, and all around financial prosperity.

What Is The Distinction Between Work Underway And Completed Products Stock?

Work-in-process stock resembles the stuff that is mostly finished in a production line. It actually should be completely made, however it’s arriving. It’s like mixture being molded into bread yet should be prepared.

Then again, completed merchandise stock is the completed item fit to be sold. Like the bread’s risen up out of the oven and is roosted on the rack, believing that someone will get it.

How Does Completed Merchandise Stock Influence An Organization’s Budget summaries?

Having completed merchandise stock on an organization’s budget summaries is generally great since it’s considered something significant the organization claims. It resembles having cash in the bank. Notwithstanding, its worth can rely heavily on how the organization works out its expenses and benefits. Various approaches to counting can change how much the completed products are worth on paper. In any case, having completed products stock recorded as a resource is something positive for an organization.

Check also: Ventsfanzine

What Are Examples Of Finished Goods?

Work-in-process (WIP) stock incorporates things actually being made, similar to a half-weaved sweater or an unbound book.

Completed products, then again, are completely finished and fit to be sold. It incorporates a finished sweater or a bound book and oat that is fixed in an oat box and ready to go on store racks.

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