Universal Inventory Formula
One formula for all inventory stages:
Or equivalently (balance form):
Application at Each Stage
Same structure, different labels for "In" and "Out":
| Stage | Beginning | + In | − Ending | = Out |
|---|---|---|---|---|
| Raw Materials | Beg RM | Purchases | End RM | Materials Used |
| Work in Process | Beg WIP | Total Mfg Costs | End WIP | COGM |
| Finished Goods | Beg FG | COGM | End FG | COGS |
Expanded Formulas
Direct Materials Used:
Cost of Goods Manufactured:
Where: Total Manufacturing Costs = DM Used + DL + MOH
Cost of Goods Sold:
Example
| Given | Amount |
|---|---|
| Beginning WIP | $90,000 |
| Direct Materials Used | $50,000 |
| Direct Labor | $60,000 |
| Manufacturing Overhead | $40,000 |
| Ending WIP | $60,000 |
Step 1: Total Manufacturing Costs = $50,000 + $60,000 + $40,000 = $150,000
Step 2: COGM = $90,000 + $150,000 − $60,000 = $180,000
The Recursive Structure
Each stage's "Out" becomes the next stage's "In":
- Materials Used → feeds into Total Manufacturing Costs
- COGM → feeds into Finished Goods calculation
- COGS → goes to Income Statement
North: Where this comes from
- Inventory Flow in Manufacturing (physical flow this formula tracks)
- Conservation Principle (what comes in must go out or stay)
East: What opposes this?
- Cash Basis Accounting (no inventory tracking)
South: Where this leads
- Schedule of Cost of Goods Manufactured (formal report using this formula)
- Income Statement - Manufacturing (COGS flows here)
West: What's similar?
- Accounting Equation (Assets = Liabilities + Equity—same balance logic)
- Sources and Uses of Funds (cash flow: where it came from, where it went)