Cost of Goods Manufactured (COGM)
The total cost of goods completed during an accounting period, including direct materials, direct labor, and manufacturing overhead.
What is COGM?
Cost of Goods Manufactured (COGM) is the total production cost assigned to goods that are completed and transferred to finished goods inventory during an accounting period. It is calculated by adding direct materials used, direct labor costs, and applied manufacturing overhead, then adjusting for changes in work-in-progress (WIP) inventory: COGM = Beginning WIP + Total Manufacturing Costs − Ending WIP. COGM feeds directly into the Cost of Goods Sold (COGS) calculation on the income statement. It is a key figure in manufacturing accounting because it links the production process to reported profitability. Companies with high COGM relative to revenue typically have lower gross margins.
Example
A furniture manufacturer starts the quarter with $200,000 in work-in-progress, incurs $1.5 million in direct materials, $800,000 in direct labor, and $400,000 in overhead during the quarter, and ends with $150,000 in WIP. COGM = $200,000 + $2,700,000 − $150,000 = $2,750,000 transferred to finished goods.