What is the concept of cost of goods manufactured (COGM) in accounting?

by tess.kassulke , in category: Taxation and Accounting , 9 months ago

What is the concept of cost of goods manufactured (COGM) in accounting?

Facebook Twitter LinkedIn Telegram Whatsapp

1 answer


by millie , 9 months ago


The cost of goods manufactured (COGM) is a concept in accounting that refers to the total cost of producing goods that are completed and ready to be sold during a specific period. It includes all the costs directly related to the manufacturing process, such as raw materials, labor, and overhead expenses.

To calculate COGM, one needs to consider the following components:

  1. Direct materials: This includes the cost of all materials used directly in the production process, such as raw materials, components, and supplies.
  2. Direct labor: This includes the wages, salaries, and benefits of employees directly involved in the manufacturing process, such as machine operators and assembly line workers.
  3. Manufacturing overhead: This includes all the indirect costs related to manufacturing, such as factory rent, utilities, insurance, maintenance, and depreciation of equipment.

By summing up these three components, the COGM can be determined. This figure represents the total cost incurred by a company to produce the goods that are available for sale in a given period. It is an important measure used for determining the cost of inventory and cost of goods sold (COGS) on the income statement.

COGM can be further used to calculate the value of ending inventory by subtracting the cost of goods sold during the period from the sum of COGM and the beginning inventory. This information is crucial for assessing the profitability and financial health of a manufacturing business.