Cost of Goods Manufactured
The Cost of Goods Manufactured (COGM) is a term used in managerial accounting that refers to a schedule or statement that shows the total production costs for a company during a specific period of time.
COGM includes the costs of direct materials, direct labor, and manufacturing overhead used in production.
The general formula to calculate COGM is:
COGM = Direct Materials Used + Direct Labor + Manufacturing Overhead + Beginning Work in Process Inventory – Ending Work in Process Inventory
Where:
- Direct Materials Used is the cost of all raw materials that were used to produce finished goods during the period.
- Direct Labor is the cost of all labor that directly went into the production of the goods.
- Manufacturing Overhead includes all other costs of production, such as indirect labor, indirect materials, and other indirect costs.
- Beginning Work in Process Inventory is the cost of unfinished goods at the beginning of the period.
- Ending Work in Process Inventory is the cost of unfinished goods at the end of the period.
This COGM figure is then used in the calculation of the Cost of Goods Sold (COGS) for the period.
Example of Cost of Goods Manufactured
Let’s look at an example of how to calculate the Cost of Goods Manufactured (COGM).
Let’s suppose we have the following data for a hypothetical company:
- Direct Materials Used: $100,000
- Direct Labor: $200,000
- Manufacturing Overhead: $150,000
- Beginning Work in Process Inventory: $50,000
- Ending Work in Process Inventory: $70,000
We can plug these figures into the COGM formula:
COGM = Direct Materials Used + Direct Labor + Manufacturing Overhead + Beginning Work in Process Inventory – Ending Work in Process Inventory
COGM = $100,000 (Direct Materials Used) + $200,000 (Direct Labor) + $150,000 (Manufacturing Overhead) + $50,000 (Beginning Work in Process Inventory) – $70,000 (Ending Work in Process Inventory)
COGM = $430,000
So, in this example, the Cost of Goods Manufactured during the period was $430,000. This means that it cost the company $430,000 to produce all the goods that it completed during this period.
