In a manufacturing company, which formula correctly expresses COGS?

In a manufacturing company, which formula correctly expresses COGS?

• A. Beginning Inventory + Purchases − Ending Inventory
• B. Beginning Finished Goods + COGM − Ending Finished Goods
• C. COGM + Beginning Finished Goods − Ending Finished Goods
• D. COGM + Beginning Inventory − Ending Finished Goods

Answer: (C)

COGS in manufacturing is the cost of goods that were finished and sold during the period. To get that, start with the finished goods you had at the beginning of the period, add the total cost of goods manufactured during the period, and subtract the finished goods you still have on hand at the end. This reflects the flow: you begin with what was already completed, add what you produced, and remove what you didn’t sell. So the proper expression is: COGM plus Beginning Finished Goods minus Ending Finished Goods. Since addition is commutative, writing Beginning Finished Goods plus COGM yields the same result, but the standard way to present it is to list COGM first and then apply the beginning and ending finished goods. The other formulas either refer to raw material purchases or mix in the wrong inventory categories, which wouldn’t correctly represent cost of goods sold for finished goods. For example, using only purchases and raw materials would apply to a merchandising or raw-materials context rather than finished goods.

COGS in manufacturing is the cost of goods that were finished and sold during the period. To get that, start with the finished goods you had at the beginning of the period, add the total cost of goods manufactured during the period, and subtract the finished goods you still have on hand at the end. This reflects the flow: you begin with what was already completed, add what you produced, and remove what you didn’t sell.

So the proper expression is: COGM plus Beginning Finished Goods minus Ending Finished Goods. Since addition is commutative, writing Beginning Finished Goods plus COGM yields the same result, but the standard way to present it is to list COGM first and then apply the beginning and ending finished goods. The other formulas either refer to raw material purchases or mix in the wrong inventory categories, which wouldn’t correctly represent cost of goods sold for finished goods. For example, using only purchases and raw materials would apply to a merchandising or raw-materials context rather than finished goods.