Understanding your company starts with an understanding of your company's costs. To make informed decisions and to keep track of your company's profitability, understanding the cost of goods manufactured (COGM) is essential. Mostly used by manufacturing companies, COGM includes all of the direct costs associated with making a product. These direct costs can be variable or fixed, but they all contribute to the final cost of the product. Definition of Cost of goods manufactured or COGMThe Cost of Goods Manufactured (COGM) is a statement that shows the total cost of producing products for a company during a specific period. COGM is the total cost of everything that goes into making a product ready for sale. This includes the cost of materials, labor, and other expenses. In simple words, COGM is the total cost of all the inputs that go into making a product. The inputs can be direct or indirect, but they all contribute to the final cost of the product. The importance of COGMCOGM is an important aspect of every manufacturing company's financial statements and there are several reasons for this.
How to calculate COGMThe formula of COGM is very simple COGM = Beginning inventory + Additions to inventory - Ending inventory Let's take an example to understand this formula. Suppose Company A has the following information for the year 2019: Beginning inventory: $100,000 Additions to inventory: $1,000,000 Ending inventory: $200,000 The COGM for Company A would be: COGM = $100,000 + $1,000,000 - $200,000 COGM = $900,000 As you can see from the example, the calculation of COGM is very simple. All you need is the information about the beginning inventory, additions to inventory, and ending inventory. ConclusionEvery manufacturing business needs to understand its COGM as it is a key indicator of profitability. By understanding the cost of goods manufactured, businesses can make informed decisions about pricing, production, and inventory. Additionally, COGM can help identify inefficiencies in the production process. Post Source Here: Cost of Goods Manufactured (COGM): Definition, Formula, Calculation, Example, Journal Entry
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