Which formula represents COGM?

The formula that represents Cost of Goods Manufactured (COGM) is accurately described by the option that includes Beginning Work In Process (WIP), Direct Materials (DM), Direct Labor (DL), and applied Overhead (OH) minus the Ending Work In Process.

COGM is crucial for understanding how much of the production costs have been completed during a specific period. Calculating COGM involves starting with the costs accumulated in the beginning WIP to account for any materials, labor, and overhead costs added during the period, along with direct materials used and direct labor incurred in production. The “applied OH” refers to the overhead that is allocated based on a predetermined rate, which reflects the indirect costs incurred during the manufacturing process.

Subtracting the Ending WIP is essential because it accounts for the costs of products that are still in progress and not yet finished. By using this formula, you isolate the actual costs that have transitioned from WIP to finished goods, providing a clear representation of the costs associated with goods that are completed within the accounting period.

This understanding is foundational for managerial accounting as it impacts inventory valuation and helps in determining profitability, setting prices, and controlling costs.