Questions: Which of the following is the correct formula for calculating cost of goods manufactured? Multiple Choice Direct materials used + direct labor + factory overhead - beginning work in process - ending work in process

Which of the following is the correct formula for calculating cost of goods manufactured? Multiple Choice Direct materials used + direct labor + factory overhead - beginning work in process - ending work in process
Transcript text: Which of the following is the correct formula for calculating cost of goods manufactured? Multiple Choice Direct materials used + direct labor + factory overhead - beginning work in process - ending work in process
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Solution

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The answer is the first one: Direct materials used + direct labor + factory overhead - beginning work in process - ending work in process.

Explanation:

  • Direct materials used: These are the raw materials that are directly traceable to the product.
  • Direct labor: This is the labor cost of workers who are directly involved in the production of goods.
  • Factory overhead: This includes all other manufacturing costs that are not direct materials or direct labor, such as utilities, depreciation, and maintenance.
  • Beginning work in process: This is the value of the work in process inventory at the beginning of the period.
  • Ending work in process: This is the value of the work in process inventory at the end of the period.

The formula for calculating the cost of goods manufactured (COGM) is:

\[ \text{COGM} = \text{Direct materials used} + \text{Direct labor} + \text{Factory overhead} + \text{Beginning work in process} - \text{Ending work in process} \]

This formula ensures that all costs associated with manufacturing the goods are accounted for, and it adjusts for the work in process inventory at the beginning and end of the period.

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