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Manufacturing Account

Manufacturing Account. Intro. Manufacturing Business. Business which buy raw materials and convert these into finished products which then sold. Example. Elements of Manufacture Cost. Direct materials Costs of the materials used during the period.

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Manufacturing Account

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  1. Manufacturing Account

  2. Intro

  3. Manufacturing Business • Business which buy raw materials and convert these into finished products which then sold

  4. Example

  5. Elements of Manufacture Cost

  6. Direct materials • Costs of the materials used during the period. • Include the purchase price of the raw materials and the acquisition costs related to the purchase. • Examples: Purchase of raw materials Carriage inwards / freight charges on raw materials

  7. Direct labour • Wages paid to the people who are directly involved in the manufacturing process. • Example: Direct labour, Direct wages, Factory wages, Production wages, Manufacturing wages

  8. Direct expenses • They refer to the expenses paid according to each unit of production. • Examples: Royalties

  9. 4) Factory Overhead Expenses / Indirect Costs • Cost incurred in the manufacturing process, but they cannot be traced directly to the goods being produced. • Include indirect materials, indirect labour and indirect expenses. • Examples: • Indirect materials • Lubricants • Loose tools • Indirect labour • wages, salaries, bonus or commission to cleaners, crane drivers, foremen, supervisors and production managers.

  10. Indirect expenses related to the factory, machinery and vehicles • Rent and rates • Depreciation • Insurance • Repairs and maintenance • Factory power / electricity • Internal transport • Loss on disposal

  11. Production Cost Production cost = Prime cost / Direct cost + Factory overhead expenses / Indirect cost

  12. Work in Progress • It refers to the semi-finished goods, which should be included in the cost of goods manufactured.

  13. Manufacturing Account • It shows the production cost or transfer price of goods completed during the accounting period. • Direct materials • Direct labour • Direct expenses • Factory overhead expenses • Work in progress • Manufacturing profit / loss

  14. Trading Account • This account shows the gross profit or loss resulted from the trading of manufactured and other purchased goods. • The account includes: • Sales • Cost of goods sold • Manufactured goods • Other goods

  15. Profit and Loss Account • Profit or loss of the whole business during the accounting period. • Includes all the expenses and income related to the office and the running of the whole business such as: • Gross profit / loss from the trading account • Manufacturing profit / loss

  16. Administration expenses • Selling and distribution expenses • Financial expenses • Increase / decrease in the provision for unrealized profit • Net abnormal loss • cash misappropriated • losses of raw materials • losses of finished goods

  17. Some expenses are related to both the manufacturing process and the administration of the office such as: • Rent and rates • Electricity • Insurance • Depreciation on premises • Motor vehicles • Motor vehicles expenses

  18. These expenses should be allocated to the factory and office and debited to the manufacturing account and the profit and loss account respectively. • The bases of allocation are usually given in the examination questions.

  19. Format of Manufacturing & Trading Account

  20. Manufacturing Account for the year ended 31 Dec XXXX $ $ Opening stock of Raw Materials X Add: Purchases of Raw Materials X Carriage inwards X Less: Closing stock of Raw Materials (X) Cost of Raw Materials Consumed X Direct Wages X Direct Expenses: Royalties X Prime Cost X Factory Overhead Expenses: Loose Tools (opening bal. + purchases –closing bal.) X Rent (e.g. 25%) X Production Manager’s salaries X Factory Power X Maintenance of plant & Machinery X Depreciation of Plant & Machinery X X X Direct material Direct labour Direct Expenses Overhead

  21. $ $ Add: Opening Work in Progress X Less: Closing Work in Progress X Production Cost of Goods Completed X Trading Account for the year ended 31 Dec XXXX Sales X Less: Returns inwards (X) X Less: Cost of Sales Opening stock of finished goods X Production cost of Goods completed X Purchases of finished goods X Less: Returns outwards (X ) Less: Closing stock of finished goods (X) X Gross Profit X The goods are transferred to trading a/c at production cost

  22. Profit & Loss Account Gross Profit X Add: Revenues Discount Received X X Less: Expenses Carriage Outwards X Rent (e.g. 75%) X Discount allowed X Administration Expenses X Distribution Expenses X Selling Expenses X Depreciation of Delivery Van X X Net Profit X $ $

  23. The End

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