What is cost of goods manufactured?
Cost of goods manufactured (COGM) – this concept is used to define total costs incurred by the business during a particular accounting period to manufacture goods.
This cost does include:
1. cost incurred to finish manufacturing of goods which were in work in progress (not yet finished) at the beginning of accounting period
2. costs of goods started and finished during the accounting period
Cost of goods manufactured excludes cost of those goods, which are not yet finished at the end of the accounting period (staying in work in progress)
Based on the above, cost of goods manufactured formula is:
Cost of WIP (opening) + Manufacturing cost (for period) – Cost of WIP (closing)
Here WIP is work in progress, i.e. not finished goods. This is how to calculate cost of goods manufactured
Manufacturing cost generally includes three main categories:
1. Direct materials
2. Direct labor
3. Overhead cost
This concept allows business to analyze composition of manufacturing cost