Which of the following formulas correctly computes Cost of Goods Manufactured (COGM)?

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

Answer: (D)

Verified step by step guidance

1. Understand the concept of Cost of Goods Manufactured (COGM): COGM represents the total cost incurred to manufacture products during a specific period, including raw materials, labor, and overhead, adjusted for changes in Work in Process (WIP) inventory.
2. Identify the components of the formula: The formula for COGM is 'Beginning Work in Process Inventory + Total Manufacturing Costs - Ending Work in Process Inventory'. Each term represents a key element in calculating the cost of goods manufactured.
3. Break down the formula: (1) Beginning Work in Process Inventory refers to the value of partially completed goods at the start of the period. (2) Total Manufacturing Costs include direct materials, direct labor, and manufacturing overhead incurred during the period. (3) Ending Work in Process Inventory represents the value of partially completed goods at the end of the period.
4. Apply the formula step-by-step: (1) Add the Beginning Work in Process Inventory to the Total Manufacturing Costs to account for all costs incurred during the period. (2) Subtract the Ending Work in Process Inventory to exclude costs related to unfinished goods at the end of the period.
5. Verify the formula's accuracy: Ensure that the formula aligns with the definition of COGM and correctly adjusts for changes in Work in Process Inventory to reflect the total cost of goods completed during the period.