Enter the beginning work in process inventory, direct materials used, direct labor, manufacturing overhead, and ending work in process inventory into the calculator to determine the cost of goods manufactured (COGM).
Cost of Goods Manufactured Formula
The following formula is used to calculate the cost of goods manufactured (COGM) during an accounting period:
COGM = BWIP + DM + DL + MOH - EWIP
Where total manufacturing costs are:
TMC = DM + DL + MOH
Variables:
- COGM is the cost of goods manufactured ($)
- BWIP is the beginning work in process inventory ($)
- DM is the direct materials used ($)
- DL is the direct labor cost ($)
- MOH is the manufacturing overhead ($)
- EWIP is the ending work in process inventory ($)
- TMC is the total manufacturing costs ($)
To calculate cost of goods manufactured, first add the direct materials used, direct labor, and manufacturing overhead to determine total manufacturing costs. Then add beginning work in process inventory and subtract ending work in process inventory.
What Is Cost of Goods Manufactured?
Cost of goods manufactured (COGM) is the total cost of producing goods that were completed during a specific accounting period. It includes the current period’s manufacturing costs along with the change in work in process inventory. COGM is commonly used in managerial accounting, cost accounting, and manufacturing analysis to track production efficiency and to support the calculation of cost of goods sold.
Unlike cost of goods sold, which reflects the cost of goods actually sold during the period, COGM focuses on the cost of goods finished during the period. This makes it especially useful for manufacturers that want to understand production costs before inventory movement into finished goods and eventual sales.
How to Calculate Cost of Goods Manufactured?
The following steps outline how to calculate the Cost of Goods Manufactured using the given formula:
- First, determine the beginning work in process inventory.
- Next, determine the direct materials used during the period.
- Next, determine the direct labor cost for the period.
- Next, determine the manufacturing overhead for the period.
- Next, calculate total manufacturing costs by adding direct materials, direct labor, and manufacturing overhead.
- Next, gather the formula from above = COGM = BWIP + DM + DL + MOH – EWIP.
- Finally, subtract ending work in process inventory to calculate the cost of goods manufactured.
- After inserting the variables and calculating the result, check your answer with a calculator.
Example Problem:
Use the following variables as an example problem to test your knowledge:
Beginning work in process inventory = 12000
Direct materials used = 45000
Direct labor = 28000
Manufacturing overhead = 17000
Ending work in process inventory = 9000
Total manufacturing costs = 45000 + 28000 + 17000 = 90000
COGM = 12000 + 45000 + 28000 + 17000 – 9000 = 93000
Answer: The cost of goods manufactured is $93,000.
Why COGM Matters
Tracking cost of goods manufactured helps manufacturers understand how much it costs to complete production during a period. It can be used to monitor cost trends, compare departments or production lines, improve budgeting, and support pricing decisions. Since COGM captures both manufacturing expenses and changes in work in process inventory, it gives a more complete view of production activity than looking at raw expenses alone.
COGM vs. Cost of Goods Sold
COGM measures the cost of goods completed during the period, while cost of goods sold measures the cost of goods actually sold during the period. A business can manufacture products in one period and sell them in another, so these values are often different. COGM flows into finished goods inventory, and cost of goods sold is then determined after adjusting for beginning and ending finished goods inventory.
