Lean Strategies International
Menu

Glossary

Would you like to add a term to the community? Click Here!

Finished Goods

12/14/2021

0 Comments

 
Finished Goods
Click on the picture to visit our YouTube page.
  Finished goods are products or end items that are sold as a complete item or unit.  These items are commonly subject to a customer order, sales order or purchase order that is linked directly to a customer.  Finished goods and products are an extension of your inventory. They are materials or products that have reached a point in either the manufacturing or transformative process where they are available for consumption. You can calculate finished goods using a formula that will also help create an inventory ratio which determines the value of your goods for sale.  Finished goods inventory is generally considered a short term asset.  Short term assets are expected to sell in less than a year as opposed to long term assets which are typically investments that will be kept for longer than a year.  Let’s look at an example of finished goods.
Click Here to Subscribe to Our YouTube Channel.
Example​ 
  Finished goods are based on a number of different criteria that are typically specific to a company. For example, Karebears Cafe is a company that bakes different types of cookies, cakes and pastries. While the cafe’s finished goods are the baked goods that are complete and ready to be sold, the assets that contribute to the finished goods include various ingredients used in baking, cookware, and any labor needed to produce the finished goods.  Another example might be a car manufacturer.  The car manufacturer’s finished goods would include the end item car or other items that are available directly to the consumer.  You may be thinking, how do I calculate the total amount of finished goods inventory?  Well, let’s take a look.
Calculating Finished Goods Inventory
  Calculating your finished goods inventory can help you better understand the assets that you have on hand.  In addition it can help reveal waste and allow you to assess where you stand in terms of profits.  Performing an analysis of product input versus product output can give you a clear view of mismatches in input and output balance as well as make sure that inventory is not being produced at a quicker rate than sales can keep up with.  One more benefit with regards to calculating finished goods is that it prevents selling items that are not in stock or available for orders.  You’re probably wondering, what is the formula?  The formula is:
  • (Cost of Goods Manufactured - Cost of Goods Sold) + Previous Period Finished Goods = Finished Goods Inventory.
  Let’s look at an example from KareBears Cafe.  Let’s say that KareBears Cafe Bakes $2000 dollars in delicious treats.  Lets then say they sell $1000 dollars worth of treats.  Now, on the previous day the Cafe finds that they had $500 in treats.  Working with our formula we apply the following:
  • ($2000 - $1000) + $500 = $1500 in finished goods inventory.
Keep in mind that templates for any equation are available in either the resource section, assignments or the description of the video.  Managing inventory can be quite complex, especially as finished goods inventory grows.  For these types of situations you may consider looking into Inventory Management Software.
​
  You now know what Finished Goods Inventory is, why it's beneficial to calculate and a formula that you can use to calculate your finished goods inventory.  Don’t forget that a Template is Available in the resource section, assignment section or the description of this video.  So, check it out.  Also, we’d like to leave you with a fun little challenge. 
Challenge
  • Assuming you have $5000 in Cost of Goods Manufactured, $3000 in Cost of Goods Sold and your previous periods finished goods inventory totaled $250, what would your Finished Goods Inventory Be?  Share your thoughts in the comments section below and receive a coupon to one of Lean Strategies International LLC's courses.
Learn more about finished goods online!
0 Comments

Your comment will be posted after it is approved.


Leave a Reply.


    Glossary


    Subscribe below and receive lean, six sigma, operations, supply chain, logistics, distribution and business terms in your mailbox.

    CLICK HERE TO SUBSCRIBE

    Categories

    All
    #
    01. Add A Term
    3D
    3PL
    3P's
    5 Principles
    5S
    5 Why's
    6σ
    8 Wastes
    A
    B
    C
    D
    E
    F
    G
    H
    I
    J
    K
    L
    M
    N
    O
    P
    Q
    R
    S
    T
    U
    V
    VSM Shapes
    W
    X
    Y
    Z

    Archives

    January 2023
    December 2022
    November 2022
    October 2022
    September 2022
    August 2022
    July 2022
    June 2022
    May 2022
    April 2022
    March 2022
    February 2022
    January 2022
    December 2021
    November 2021
    October 2021
    September 2021
    August 2021
    July 2021
    June 2021
    May 2021
    April 2021
    March 2021
    February 2021
    January 2021
    December 2020
    November 2020
    October 2020
    September 2020
    August 2020
    July 2020
    May 2020
    April 2020
    March 2020
    November 2019
    October 2019
    August 2019
    July 2019
    June 2019
    May 2019
    April 2019
    March 2019
    February 2019
    January 2019
    December 2018
    November 2018
    October 2018
    September 2018
    August 2018
    July 2018
    June 2018
    May 2018
    March 2018
    February 2018
    May 2017
    April 2017
    March 2017
    February 2017
    January 2017
    December 2016
    November 2016
    October 2016
    September 2016
    November 2015

Lean Strategies International LLC.
Follow Us on YouTube or Our Other Channels Below.
             ©2015-2021 Lean Strategies International LLC.  
  • Home Page
  • Services
    • Training >
      • Waste Training
      • Introduction to Lean
      • Lean Champions >
        • Lean Six Sigma White Belt
        • Lean Six Sigma Yellow Belt
      • Lean Tools You Can Use Series! >
        • The 5S System
        • The ©Gemba Methodology
        • The FISH Methodology
        • The CURE Methodology
        • Quick Changeover with REDUCE
        • Mistake Proofing and the Poka Yoke System
        • The Just in Time System
  • Lean Resources
    • Listen to The Gemba
    • Glossary
    • Lean and Six Sigma Quotes
    • Recommended Reading
    • Events
    • Masters of Lean and Six Sigma
    • Career /Jobs
  • Store
    • Workspace
  • Home Page
  • Services
    • Training >
      • Waste Training
      • Introduction to Lean
      • Lean Champions >
        • Lean Six Sigma White Belt
        • Lean Six Sigma Yellow Belt
      • Lean Tools You Can Use Series! >
        • The 5S System
        • The ©Gemba Methodology
        • The FISH Methodology
        • The CURE Methodology
        • Quick Changeover with REDUCE
        • Mistake Proofing and the Poka Yoke System
        • The Just in Time System
  • Lean Resources
    • Listen to The Gemba
    • Glossary
    • Lean and Six Sigma Quotes
    • Recommended Reading
    • Events
    • Masters of Lean and Six Sigma
    • Career /Jobs
  • Store
    • Workspace