Calculate Cost of Goods Manufactured (COGM) for Shopify Brands

What is Cost of Goods Manufactured (COGM) - A quick explanation

The cost of goods manufactured is the total production cost of the goods that a company completes during a specific period. It includes materials, labor, and overhead costs associated with the production process.

How to Calculate Cost of Goods Manufactured (COGM)?

   
1. Calculate Direct Materials: Start by calculating the total cost of raw materials used in production. This includes all materials that are directly incorporated into the finished product.
   
2. Add Direct Labor: Include the cost of labor directly involved in the manufacturing process.
   
3. Include Manufacturing Overhead: Add all indirect costs associated with production, such as utilities, depreciation, and maintenance expenses related to the production facilities.
   

How Prediko Simplifies Cost of Goods Manufactured (COGM)?

Within Prediko, you can easily track your entire raw materials catalogue by doing a simple import. Once you have imported the raw materials, you can track the

1. Consumption of raw materials - Number of units in stock, in production, lead time and MOQ type.
2. Add and track Bill of Materials (BOM) - Select the main product, SKUs, raw materials and production time.

Formula for calculating Cost of Goods Manufactured (COGM)

Once you are able to track your raw materials, you can stay on top of your raw materials cost. Once you know your raw materials cost, you can easily calculate your Cost of Goods Manufactured by using a simple formula

Calculate COGM ‍COGM = Direct Materials + Direct Labor + Manufacturing Overhead

For an accurate inventory valuation, consider Calculating Ending Inventory Using FIFO.

Analysing Cost of Goods Manufactured (COGM) for Shopify D2C Brands

Compare your Cost of Goods Manufactured with industry standards or with similar companies. This helps in understanding whether the costs are reasonable or if there are opportunities for improvement.

Analyze which components of the Cost of Goods Manufactured (materials, labor, overhead) are contributing the most and target those areas for cost reduction efforts.

A low Cost of Goods Manufactured also means the use of inferior materials and/or cheaper labor, which affects product quality and brand reputation.