Which of the following best describes how Cost of Goods Manufactured (COGM) is calculated?

• A. Net Sales - Cost of Goods Sold
• B. Beginning Work in Process Inventory + Total Manufacturing Costs - Ending Work in Process Inventory
• C. Direct Materials Used + Direct Labor + Manufacturing Overhead
• D. Beginning Finished Goods Inventory + Purchases - Ending Finished Goods Inventory

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the concept of Cost of Goods Manufactured (COGM). COGM represents the total cost incurred to manufacture products during a specific period, including direct materials, direct labor, and manufacturing overhead, adjusted for changes in work-in-process inventory.
2. Step 2: Identify the formula for COGM. The correct formula is: Beginning Work in Process Inventory + Total Manufacturing Costs - Ending Work in Process Inventory.
3. Step 3: Break down the components of the formula. 'Beginning Work in Process Inventory' refers to the value of partially completed goods at the start of the period. 'Total Manufacturing Costs' include Direct Materials Used, Direct Labor, and Manufacturing Overhead. 'Ending Work in Process Inventory' refers to the value of partially completed goods at the end of the period.
4. Step 4: Compare the given options to the formula. The correct option matches the formula for COGM, which is: Beginning Work in Process Inventory + Total Manufacturing Costs - Ending Work in Process Inventory.
5. Step 5: Eliminate incorrect options. For example, 'Net Sales - Cost of Goods Sold' relates to gross profit calculation, not COGM. Similarly, 'Direct Materials Used + Direct Labor + Manufacturing Overhead' represents Total Manufacturing Costs, not COGM. 'Beginning Finished Goods Inventory + Purchases - Ending Finished Goods Inventory' pertains to Cost of Goods Sold, not COGM.