Manufacturing cost flow

Manufacturing cost flow: the path production costs travel through a manufacturer's accounts, moving from direct materials, labour and overhead into work in progress, then finished goods, then cost of goods sold.

ByHoang TruongUpdated July 11, 2026

See it move

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A furniture workshop incurs €18,000 of direct materials, €12,000 of direct labour and €9,000 of overhead, totalling €39,000 in manufacturing costs. Work in progress moves from €4,000 to €6,000, giving a cost of goods manufactured of €37,000. Finished goods moves from €5,000 to €3,000, so cost of goods sold for the month is €39,000, the same figure the period started with.

Where it fits

SubjectCost AccountingCoreTopicProduct Costing & Cost of Goods ManufacturedCore

The formula

LaTeX

COGM = WIP_{beg} + (DM + DL + OH) - WIP_{end}

Variables

$C O GM$: Cost of goods manufactured (€)
$W I P_{b e g}$: Beginning work-in-progress inventory (€)
$D M$: Direct materials used (€)
$D L$: Direct labour (€)
$O H$: Manufacturing overhead applied (€)
$W I P_{e n d}$: Ending work-in-progress inventory (€)

Converts the period's total manufacturing costs into the cost of the units actually completed, by adjusting for unfinished work at each end of the period.

LaTeX

COGS = COGM + FG_{beg} - FG_{end}

Variables

$C O GS$: Cost of goods sold (€)
$C O GM$: Cost of goods manufactured (€)
$F G_{b e g}$: Beginning finished-goods inventory (€)
$F G_{e n d}$: Ending finished-goods inventory (€)

Converts the cost of units completed into the cost of units actually sold in the period, by adjusting for finished-goods inventory at each end of the period.

Check yourself

PracticeCORE

A furniture manufacturer's cost records for the month show: beginning work-in-progress €7,000, direct materials used €22,000, direct labour €15,000, manufacturing overhead applied €11,000, and ending work-in-progress €9,000. What is the cost of goods manufactured for the month?

Select an answer to check your understanding.