Cost of goods manufactured

Definition

Cost of Goods Manufactured (COGM) represents the total production cost incurred by a company to produce goods in a specific period. It includes direct materials, direct labor, and manufacturing overhead costs.

5 Must Know Facts For Your Next Test

1. COGM is calculated by adding Total Manufacturing Costs to the beginning Work in Process Inventory and then subtracting the ending Work in Process Inventory.
2. Total Manufacturing Costs include direct materials used, direct labor, and manufacturing overhead during the period.
3. COGM is a crucial component in determining the Cost of Goods Sold (COGS) on the income statement.
4. An increase in COGM indicates higher production activity or increased costs per unit produced.
5. Accurate calculation of COGM helps companies set product pricing and measure production efficiency.

Review Questions

• What components are included in calculating the Cost of Goods Manufactured?
• How does Cost of Goods Manufactured affect the Cost of Goods Sold?
• Why is it important for companies to accurately calculate their Cost of Goods Manufactured?

Related terms

Direct Materials:

Raw materials that are directly traceable to the finished product.

Direct Labor:

Wages paid to workers directly involved in manufacturing a product.

Manufacturing Overhead:

All indirect costs associated with production, such as utilities and depreciation on equipment.