How to use the cost of goods manufactured calculator
- Enter the raw materials at the start and end of the period and the raw materials you purchased.
- Enter direct labor and manufacturing overhead for the period.
- Enter work in process and finished goods at the start and end of the period, and optionally the units you finished.
- Read direct materials used, total manufacturing cost, cost of goods manufactured and cost of goods sold. The table is laid out like the schedule in a cost accounting textbook.
Formula
direct materials used = beginning raw materials + purchases - ending raw materials
total manufacturing cost = direct materials used + direct labor + manufacturing overhead
cost of goods manufactured = total manufacturing cost + beginning WIP - ending WIP
cost of goods sold = beginning finished goods + cost of goods manufactured - ending finished goods
Cost of goods manufactured is the cost of the units that were finished in the period, whether or not they were sold. Cost of goods sold adds the change in finished goods.
A small factory for a quarter
Raw materials start at $40,000, purchases are $160,000 and raw materials end at $50,000, so direct materials used are $150,000. Adding direct labor of $90,000 and overhead of $80,000 gives total manufacturing cost of $320,000.
Work in process rises from $25,000 to $30,000, so cost of goods manufactured is 320,000 + 25,000 - 30,000 = $315,000. Finished goods fall from $60,000 to $45,000, so cost of goods sold is 60,000 + 315,000 - 45,000 = $330,000. With 63,000 units finished, the cost is $5.00 per unit.
How it connects to cost of goods sold
A retailer buys finished goods, so its cost of goods sold starts from purchases. A manufacturer makes them, so the starting point is the cost of making them, which is what this schedule builds. The COGS Calculator covers the merchandise case.
To price the work in process you can use the Process Costing Equivalent Units Calculator, and to check the overhead you applied use the Over and Under Applied Overhead Calculator.
Reading the results
A large rise in work in process means cost is piling up without finished units. A fall in finished goods means you sold more than you made. Both can be healthy for a while, but a trend is worth a look.
Assumptions and limits
- Overhead is one amount, either actual or applied. Over and under applied overhead adjustments are not made here.
- Indirect materials and indirect labor are assumed to be inside the overhead figure.
- All balances are in dollars at cost, from the same ledger and the same dates.
- Units finished is used only for the cost per unit and is not checked against sales.
- The schedule is for planning and learning, not a replacement for your accountant's statements.
Frequently asked questions
What is the difference between cost of goods manufactured and cost of goods sold?
Cost of goods manufactured is the cost of units finished in the period. Cost of goods sold is the cost of units sold, which also depends on the finished goods you had at the start and the end.
Where do I put indirect labor?
Include it in manufacturing overhead. Direct labor is only the labor that can be traced to the product.
Why does the tool say materials used would be negative?
Ending raw materials cannot be more than the beginning balance plus purchases. Check that the balances are for the same period.
Is the per unit cost the cost of each unit sold?
No. It is the average cost of the units finished in the period, which is cost of goods manufactured divided by units finished.