How erpnext handle Cost of manufactured Goods

ERPNext manufacturing module can provide the Cost of Goods Manufactured (COGM) using below formula:

COGM = Direct Materials Used + Direct Labor + Manufacturing Overhead + Beginning Work-in-Process Inventory − Ending Work-in-Process Inventory

Here’s how this can be achieved in ERPNext:

1. Direct Materials Used: ERPNext tracks material consumption through the Bill of Materials (BOM) and Stock Entries for manufacturing. It calculates the raw materials consumed during production.
2. Direct Labor: Labor costs can be added to production costs either through the Workstation setup (where hourly rates are defined) or as part of the Operations in the BOM.
3. Manufacturing Overhead: Overheads can also be included in the BOM or as additional costs in the Production Order.
4. Work-in-Process Inventory: ERPNext maintains detailed tracking of WIP inventory through Stock Entries and can calculate the opening and closing WIP inventory based on ongoing production and consumption data.

Steps to Generate COGM:

1. Configure the BOM to include all material, labor, and overhead costs.
2. Use Production Orders to initiate and track manufacturing.
3. Record stock movements using Stock Entries for materials issued and finished goods received.
4. Utilize the Workstation Costs and Time Logs to track labor and overhead accurately.
5. Access reports such as the Manufacturing Analytics Report or Cost Center Report to analyze production costs, including COGM.

With proper setup and data entry, ERPNext provides detailed cost tracking and supports COGM calculations based on the formula you provided.