**Cost of Goods Manufactured Formula (Table of Contents)**

## What is the Cost of Goods Manufactured Formula?

The cost of goods manufactured can be defined as the total productions costs that are incurred to manufacture the product and convert the same to finished product. The cost of goods manufactured formula is represented as follows,

**Cost of Goods Manufactured Formula = Direct Materials Cost**

**(+) Direct Labor Cost**

**(+) Manufacturing Overhead**

**(+) Beginning WIP Inventory**

**(-) Closing WIP Inventory**

### Explanation of the Cost of Goods Manufactured Formula

The Cost of goods manufactured can be calculated by summing up the total cost of manufacturing; that shall include all direct labor costs, direct materials cost, and other factories’ overhead costs; to the opening work-in-process stock and then deducting the ending inventory in the process stock. This is nothing but the cost sheet of the company and it includes prime cost as well. Hence adding all of the manufactured stage inventory and all the direct expenses will sum up to cost of good manufactured and when one divides the same by the number of units produced will yield the cost of goods manufactured.

### Examples of Cost of Goods Manufactured Formula

Let’s see some simple to advanced examples of the cost of goods manufactured equation to understand it better.

#### Example #1

**PQR Ltd. has produced the following details from its production department. You are required to calculate the cost of goods manufactured.**

**Solution**

Therefore, the calculation of the cost of goods manufactured is as follows,

- = 8,00,000 + 12,00,000 + 22,00,000 +6,00,000 – 4,80,000

**Cost of Goods Manufactured will be –**

**Cost of Goods Manufactured = 43,20,000**

#### Example #2

**Mr. W has been working in the FEW manufacturing and he has been asked to work upon to create the cost sheet of the Product “FMG” and present the same in the next meeting. The following details have been obtained from the production department.**

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Based on the above information, you are required to calculate the cost of goods manufactured.

**Solution**

Here we are not given directly Material and Labor Cost. We need to calculate the same first.

We just need to multiply the cost per unit by the number of units as per below:

**Calculation of Material and Labor Cost**

- Material Cost = 250 x 500
**=125,000**- Labor Cost = 200 x 500
- =
**100,000**

Therefore, the calculation of the cost of goods manufactured is as follows,

- = 125,000 + 100,000 + 250,000 + 79,000 – 63,200

**Cost of Goods Manufactured will be –**

**Cost of Goods Manufactured= 4,90,800**

Hence, the cost of goods manufactured will be 490,800.

#### Example #3

**Starc industries have started to manufacture a new product called “Avenger Sword” which will be used during war times and it is designed in such a way that it can be used as a sword and as well as shield. However, being a nonprofit organization they are not worried about its pricing. But in order to continue production, they need to at least recover the cost and hence the management of the star industries has asked the production department to send over the cost that is incurred while producing the newly invented product “Avenger Sword”.**

Below are the details provided by the production department:

The above details are in US$ and in thousands. You are required to calculate the cost of goods manufactured and also per unit cost.

**Solution**

Here we are not given directly Material and Labor Cost. We need to compute the same first.

We just need to multiply the cost per unit by the number of units as per below:

**Calculation of Material and Labor Cost**

**Material Cost = 491,250 x 100 = 49,125,000****Labor Cost = 378,000 x 100 = 37,800,000**

Therefore, the calculation of the cost of goods manufactured is as follows,

= 49,125,000 + 37,800,000+ 4,37,50,000 + 2,98,62,000 – 2,38,89,600

**Cost of Goods Manufactured will be –**

**Cost of Goods Manufactured = 13,66,47,400**

Hence, the cost of goods manufactured will be 13,66,47,400 and per unit, it will be 1,366,474 when divide it by 100.

### Relevance and Uses

Manufacturing Account or COGM formula can be calculated for serving below purposes:

- It shall help in setting out with appropriate classification of the elements of the costs in detail.
- This will also aid the management in the reconciliation of financial records with the costing records.
- Further, this statement will also serve the basis for comparison of operations of manufacturing on a year to year basis.
- All of the above, this will also allow the firm to properly plan its resource utilization planning, product pricing strategy, volume production planning, etc.
- If the firms have schemes such as profit sharing and are in force then it may also help them in fixing the amount of production along with profit-sharing bonus.

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