Question

How is cost of goods manufactured calculated?

Short answer

The cost of goods manufactured in three steps first direct material used is calculated, second total manufacturing costs incurred, and then the cost of goods manufactured is calculated.

Step-by-step solution

Definition of cost of goods manufactured

The cost of goods manufactured is defined as the manufacturing costs of the goods that finished the production process during a given accounting period.

Calculation of cost of goods manufactured

The cost of goods manufactured in three steps which are as follows:

Step 1: Calculation of direct material used.

Step 2: Calculation of total manufacturing costs incurred during the year.

Step 3: Calculation of cost of goods manufactured.