Which of the following is the correct formula for determining Cost of Goods Manufactured (COGM)?

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

Answer: (D)

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 (WIP) inventory.
2. Step 2: Identify the components of the formula for COGM. The formula is: Beginning Work in Process Inventory + Total Manufacturing Costs - Ending Work in Process Inventory.
3. Step 3: Break down the formula: (a) Beginning Work in Process Inventory refers to the value of unfinished goods at the start of the period. (b) Total Manufacturing Costs include direct materials, direct labor, and manufacturing overhead incurred during the period. (c) Ending Work in Process Inventory refers to the value of unfinished goods at the end of the period.
4. Step 4: Apply the formula step by step: (a) Add the Beginning Work in Process Inventory to the Total Manufacturing Costs. (b) Subtract the Ending Work in Process Inventory from the result obtained in the previous step.
5. Step 5: Ensure accuracy by verifying that all inventory values and manufacturing costs are correctly recorded and calculated, as these are essential for determining the correct COGM.