How to Calculate COGS for a Manufacturer

This video shows an example of how to calculate Cost of Goods Sold for a manufacturer.

Manufacturers cannot calculate Cost of Goods in the same way that a retailer calculates Cost of Goods Sold, because manufacturers build their own inventory (in contrast to retailers, which purchase their inventory).

For manufacturing firms, Cost of Goods Sold is equal to the beginning Finished Goods Inventory plus Cost of Goods Manufactured minus ending Finished Goods Inventory.

To calculate Cost of Goods Manufactured, you add the total manufacturing costs to the beginning Work-in-Process Inventory and then subtract the ending Work-in-Process Inventory.

Total manufacturing costs are direct materials used, direct labor, and manufacturing overhead.—
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