Cost of Goods Manufactured in India: Build the Schedule

Cost of goods manufactured (COGM) is the total cost of the goods your factory completed in a period, whether or not they were sold. Add direct materials used, direct labour and factory overhead, add opening work in progress, then subtract closing work in progress (Corporate Finance Institute).

The terms, defined once:

• Direct materials used is opening raw materials + purchases − closing raw materials (Lumen Learning).
• Direct labour is the pay of people who make the product.
• Factory overhead is every other cost of running production. AS 2 (revised 1999), paragraph 8, gives fixed examples: depreciation and maintenance of factory buildings and the cost of factory management and administration. Its variable examples are indirect materials and indirect labour.
• Work in progress (WIP) is goods started but not finished.

Cost of goods sold (COGS) follows from COGM: opening finished goods + COGM − closing finished goods.

For the cost of a single unit built from its bill of materials, see our BOM costing guide. This page covers the period total.

A one-month COGM for a small fabricator is ₹13,76,000, or ₹1,720 a unit, built as follows. The figures are our illustrative model, not company data. We assume GST of 18% on materials, 800 finished units in the month and normal capacity of 1,000 units.

COGS then follows: ₹2,50,000 opening finished goods + ₹13,76,000 COGM − ₹3,00,000 closing finished goods = ₹13,26,000.

Now add every rupee of fixed overhead (₹1,20,000) and the scrap (₹30,000) instead. COGM becomes ₹14,30,000, or ₹1,787.50 a unit. That is ₹54,000 too high, which is the ₹24,000 of unabsorbed overhead plus the ₹30,000 of scrap. Start from gross invoices as well and the total reaches ₹15,92,000, which is ₹2,16,000 too high.

AS 2 keeps out recoverable taxes, the fixed overhead of idle capacity and abnormal waste, along with selling and distribution costs. Each exclusion moves your COGM.

• Recoverable taxes (paragraph 7). Purchase cost is the price "including duties and taxes (other than those subsequently recoverable by the enterprise from the taxing authorities)", plus freight inwards, less trade discounts and rebates. GST you claim back as input tax credit (ITC) is recoverable, so it stays out of materials cost. GST you cannot claim is part of cost. Confirm your eligibility with your tax adviser.
• Fixed overhead on normal capacity (paragraph 9). Normal capacity is the production expected on average over a number of periods "under normal circumstances, taking into account the loss of capacity resulting from planned maintenance". The overhead per unit "is not increased as a consequence of low production or idle plant", and "unallocated overheads are recognised as an expense in the period in which they are incurred". In the example, the ₹24,000 for 200 unused units goes straight to the profit and loss. Our recommendation: set normal capacity from your average output over the past twelve months, adjusted for planned maintenance.
• Excluded costs (paragraph 13). These are "abnormal amounts of wasted materials, labour, or other production costs", storage costs unless needed in production, administrative overheads that do not help bring stock to its present location and condition, and selling and distribution costs.

Because Bajaj Auto's statement, a large Indian manufacturer's, lists expenses by type, not by production stage. Its FY2024-25 standalone statement shows these lines, in ₹ crore:

• Cost of raw materials and components consumed: 32,265.79.
• Changes in inventories of finished goods, work-in-progress and traded goods: 35.18.
• Employee benefits expense: 1,579.44.
• Revenue from operations: 50,010.31.

The inventory-change line combines finished goods, WIP and traded goods, so there is no COGM line to copy. Our inference: a statement laid out this way will not give you the figure either, and it has to come from the stock ledger and cost records.

By our arithmetic on that one statement, materials are about 64.5% of revenue (32,265.79 ÷ 50,010.31) and employee costs about 3.2% (1,579.44 ÷ 50,010.31). That is one very large manufacturer, not a benchmark for a small factory. It does show where care pays: the materials-used line.

Take materials from production issues in your stock ledger and labour from production payroll. Take overhead from the ledger, and value work in progress at cost, never at selling price.

• Materials. The issue cost depends on your valuation method; see inventory valuation methods. Freight inward belongs in purchase cost, and our landed cost calculation guide shows how to add it.
• Work in progress. AS 2 values inventory at the lower of cost and net realisable value, the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale (AS 2).
• Part-finished units. Use equivalent units, which convert part-finished goods into whole-unit equivalents. For example, 100 units that are 40% converted equal 40 equivalent units for labour and overhead; materials added at the start count as 100.
• Outsourced processing. Our recommendation: carry cutting, painting or other job-work charges in WIP and spread them over the units completed when the job closes. Our WIP inventory guide covers valuing and ageing WIP, including job work.

Run five tests. Each passes or fails on a number you can compare.

We supply the materials and production side of the schedule: what went into each batch, what is still in progress and what each input cost to land. Production and bills of materials start on our Advance plan, $499 per month billed yearly as of November 2026. That covers two user licences, with extra users at $52 per month.

• Materials per batch. We track the materials used in a production batch and let you control stock issues during production. That record feeds direct materials used (check 1).
• Cost and WIP by stage. Our manufacturing feature gives visibility and control over the cost of production and work in progress for materials at each stage, which is where closing WIP starts.
• Landed cost. On our Enterprise plan, landed cost allocates transport, import duties, customs fees and other expenses to inventory items.

Labour and factory overhead come from your payroll and ledger. You get a 15-day free trial with full access and no credit card. Setup typically takes a minimum of two weeks, depending on data readiness. Book a demo with our team to see it on your own products.