How to Compute Cost of Goods Manufactured

The cost of goods manufactured can give you ideas about how your business can save money.

The cost of goods manufactured is an important calculation for every business. The cost of goods manufactured can give you an indication of where your money is going during the manufacturing process and how you can save money for your business.

Things You'll Need

• Spreadsheet software
• Paper
• Pencil
• Calculator

Instructions

1. Open a blank spreadsheet. If you do not have a computer, use a piece of paper divided into columns.

2. Calculate your cost of direct materials used. Add your raw inventory cost to any inventory you have purchased during the specified time period. This gives you your total raw materials available. Deduct the cost of raw inventory you have at the end of the time period.

3. Calculate your labor cost to your business for the specified time period.

4. Calculate your overhead costs. Include everything from rent, if you lease space for the business, to depreciation of your building if you own it and depreciation costs of your equipment. Add taxes, insurance and indirect costs for the manufacturing process of your product, such as water and electricity.

5. Compute the cost of your work in progress at the beginning of the specified time period.

6. Add your cost of direct materials used, direct labor costs, overhead costs and beginning inventory work in progress costs.

7. Deduct the cost of your work in progress at the end of the specified time period. This final calculation is your cost of goods manufactured for that time period.

Tips & Warnings

• Have an accountant verify your numbers if you are using this for quarterly or annual reports.

References

• Pinciples of Accounting. com: Chapter 17