Which cost is typically included in computing the cost of goods manufactured?

The cost of goods manufactured (COGM) is a crucial figure in managerial accounting as it represents the total costs incurred to produce goods during a specific period. This figure helps determine the cost of inventory that is moved to the cost of goods sold. When computing COGM, it's essential to include all direct costs associated with the production of products.

Raw material costs directly relate to the inputs used in the manufacturing process. These costs include purchases of materials that are necessary for production, any shipping or handling costs associated with acquiring those materials, and adjustments for inventory changes. Including raw material costs in the calculation of COGM aligns with the understanding that these materials are a fundamental component in the creation of finished products.

In contrast, advertising expenses, research and development costs, and administrative expenses do not form part of the COGM. Advertising is considered a selling expense, research and development is more related to innovation and future product development rather than current manufacturing, and administrative expenses are related to overall management and operations, not directly tied to the production of goods. Thus, these costs are excluded from the calculation of COGM.