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Manufacturing Account Minimum Knowledge Requirement Knowledge of Double Entry System Knowledge of Final Account Content Introduction Brainstorm Reasons for the Manufacturing a/c Characteristics of Manufacturing a/c How to prepare a manufacturing a/c?

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Presentation Transcript
slide1

ManufacturingAccount

Minimum Knowledge Requirement

  • Knowledge of Double Entry System
  • Knowledge of Final Account
content
Content
  • Introduction
  • Brainstorm
  • Reasons for the Manufacturing a/c
  • Characteristics of Manufacturing a/c
  • How to prepare a manufacturing a/c?
  • How to write up a set of Final a/c?
  • Revision
introduction
Introduction

Nowadays, there is a trend of the manufacturers to set up their own retail shops to provide direct selling services to consumers.

How can they calculate the profit and the costs they used while producing goods?

So in this section, we will learn a new topic -

Manufacturing Account

Back

brainstorm
Brainstorm

Guess…..

1.Whom are going to need this a/c?

2.Does it has any differences between the final a/c you have learnt before?

3.Can you name some of the company who need this a/c?

Back

reason for manufacturing a c
Reason for Manufacturing a/c

Thinking….

What is the main purpose of preparing the Trading and Profit and Loss a/c?

Main purpose of preparing the Trading and Profit and Loss a/c is the statement showing of which the profits are calculated. It is an satisfactory form of final a/c for a Trading Business. But…

Is it a sufficientexplanatory for manufacturing firms?

Back

reason for manufacturing a c6
Reason for Manufacturing a/c

No. Such firm will then prepare an additional a/c– theManufacturing a/c which shows thefactory or works cost of the goods produced.

Day Books and

Double Entry System

Trial Balance

Manufacturing a/c

Trading and

Profit and Loss a/c

Balance Sheet

Back

characteristics of manufacturing a c
Characteristics of Manufacturing a/c

Thinking……

When will the Manufacturing a/c use?

Manufacturing a/c will be used by the manufacturers.

So. Do you suggest some of the characteristics of a Manufacturing a/c.

Back

characteristics of manufacturing a c8
Characteristics of Manufacturing a/c

So. Here’re some of the Characteristics:

It is designed to show……

  • -the cost of goods manufactured under the normal conditions.
  • -The analysis of the elements of cost.

Back

how to prepare a maufacturing account
How to prepare a maufacturing account?

What you will learn in this section……

1. Different Headings of cost and

expenses

2. The Format of Manufacturing a/c

Back

how to prepare

Manufacturing a/c

For the Year ended 31 Dec 20-1

Raw Material

$

$

$

$

Opening Stock

x

Trading a/c

x

Add: Purchases

X

Carriage Inwards

X

X

Less: Closing Stock

x

X

Direct Labour

Factory Wages

X

Direct Expenses

Royalties

X

Prime Cost

X

Back

How to prepare…

T-Form

To be Continued…

how to prepare11
How to prepare…

Raw Material

All the raw materials consumed in the production process

T Form

Vertical Form

Back

how to prepare12

Manufacturing a/c

For the Year ended 31 Dec 20-1

Raw Material

$

$

$

$

Opening Stock

x

Trading a/c

x

Add: Purchases

X

Carriage Inwards

X

X

Less: Closing Stock

x

X

Direct Labour

Factory Wages

X

Direct Expenses

Royalties

X

Prime Cost

X

Back

How to prepare…

T-Form

To be Continued…

how to prepare13
How to prepare…

Direct Labours

Included the labours directly involved in production

T Form

Vertical Form

Back

how to prepare14

Manufacturing a/c

For the Year ended 31 Dec 20-1

Raw Material

$

$

$

$

Opening Stock

x

Trading a/c

x

Add: Purchases

X

Carriage Inwards

X

X

Less: Closing Stock

x

X

Direct Labour

Factory Wages

X

Direct Expenses

Royalties

X

Prime Cost

X

Back

How to prepare…

T-Form

To be Continued…

how to prepare15
How to prepare…

Direct Expense

Included the expenses directly involved in production e.g copyright, royalties

T Form

Vertical Form

Back

how to prepare16

Manufacturing a/c

For the Year ended 31 Dec 20-1

Raw Material

$

$

$

$

Opening Stock

x

Trading a/c

x

Add: Purchases

X

Carriage Inwards

X

X

Less: Closing Stock

x

X

Direct Labour

Factory Wages

X

Direct Expenses

Royalties

X

Prime Cost

X

Back

How to prepare…

T-Form

To be Continued…

how to prepare17
How to prepare…

Prime Cost = direct costs and expenses used in the

process of production.

Direct costs and expenses = Cost of raw material consumed + Direct labour + Direct expense

+

+

T Form

Vertical Form

Back

how to prepare18

Factory Overhead

Factory Rent

X

Repairs of Machinery

X

Depreciation of Machinery

X

X

(Gross Cost of Production)

X

Add: Work in -progress

X

(1.1.19-9)

X

Less: Work-in-progress

X

(31.12.19-9)

X

Profit on Manufacture

X

(Net Cost of Production)

x

Back

How to prepare…

Continued….

how to prepare19
How to prepare…

Factory Overhead

It is the total of indirect expenses. It may include: rent, rates, lighting and heating of the plant, depreciation and repairs of machinery, etc

T Form

Vertical Form

Back

how to prepare20

Factory Overhead

Factory Rent

X

Repairs of Machinery

X

Depreciation of Machinery

X

X

(Gross Cost of Production)

X

Add: Work in -progress

X

(1.1.19-9)

X

Less: Work-in-progress

X

(31.12.19-9)

X

Profit on Manufacture

X

(Net Cost of Production)

x

Back

How to prepare…

Continued….

how to prepare21
How to prepare…

Gross cost of production =

Prime Cost + Factory Overhead.

- sometimes called the Cost of Productionunder the situation of no adjustment for work-in-progress

Prime Cost

+

T Form

Vertical Form

Back

how to prepare22

Factory Overhead

Factory Rent

X

Repairs of Machinery

X

Depreciation of Machinery

X

X

(Gross Cost of Production)

X

Add: Work in -progress

X

(1.1.19-9)

X

Less: Work-in-progress

X

(31.12.19-9)

X

Profit on Manufacture

X

(Net Cost of Production)

x

How to prepare…

Back

Continued….

how to prepare23
How to prepare…

Work-in-progress

Incomplete works at the end and beginning of the year

T Form

Vertical Form

Back

how to prepare24

Factory Overhead

Factory Rent

X

Repairs of Machinery

X

Depreciation of Machinery

X

X

(Gross Cost of Production)

X

Add: Work in -progress

X

(1.1.19-9)

X

Less: Work-in-progress

X

(31.12.19-9)

X

Profit on Manufacture

X

(Net Cost of Production)

x

How to prepare…

Back

Continued….

how to prepare25
How to prepare…

Profit or loss on manufacture

Cost of Goods produced < Market Price = Profit

– debit side of manufacturing a/c

Cost of Goods produced > Market Price =Loss

- credit side of manufacturing a/c

T Form

Vertical Form

Back

how to prepare26

Factory Overhead

Factory Rent

X

Repairs of Machinery

X

Depreciation of Machinery

X

X

(Gross Cost of Production)

X

Add: Work in -progress

X

(1.1.19-9)

X

Less: Work-in-progress

X

(31.12.19-9)

X

Profit on Manufacture

X

(Net Cost of Production)

x

Back

How to prepare…

Continued….

how to prepare27
How to prepare…

Net cost of production

-After adjustments have been made, a figure of Net cost of Production is obtained.

- This figure will transfer

to Trading a/c

Vertical Form

Back

how to prepare28

Manufacturing a/c

For the Year ended 31 Dec 20-1

Raw Material

$

$

$

$

Opening Stock

x

Trading a/c

x

Add: Purchases

X

Carriage Inwards

X

X

Less: Closing Stock

x

X

Direct Labour

Factory Wages

X

Direct Expenses

Royalties

X

Prime Cost

X

Back

How to prepare…

Net cost of Production

The figure will transfer to Trading a/c

how to prepare29

Manufacturing a/c

For the year ended 31 Dec 20-1

Raw Material

$

$

$

Opening stock

X

Add : Purchase

X

Carriage Inwards

X

X

Less: Closing Stock

x

X

Direct Labour

Factory Wages

X

Direct Expense

Royalties

X

Prime Cost

x

Back

How to prepare…

Sometimes We may use Vertical Form.

To be Continued…

how to prepare30

Factory Overhead

$

$

$

Factory Rent

X

Repairs of Machinery

X

Depreciation of Machinery

X

x

(Gross Cost of Production)

X

Add: Work-in-Progress (1.1.20-1)

X

X

Less: Work-in-progress(31.12.20-1)

X

X

Profit on Manufacture

X

(Net Cost of Production)

X

Back

How to prepare…

Continued……

illustration 1
Raw Material Purchased 36000

Carriages Inwards 3500

Royalties 2000

Factory Expenses 1800

Manufacturing Wages 17000

Raw Material (Opening Stock) 2000

( Closing Stock) 2500

Please used the detail above to calculate:

Raw Material Consumed

Prime Cost

Illustration 1

Back

illustration 132

Opening Stock

2000

Purchases

36000

Carriages Inwards

3500

41500

Closing Stock

2500

39000

Illustration 1

Answer:

1. Raw Material Consumed

Raw Material Consumed = Raw Material ( Opening Stock + Purchases + Carriages Inwards - Closing Stock )

Back

illustration 133

Raw Material Consumed

39000

Direct Labour

2000

Direct Expense

1800

42800

Illustration 1

Answer:

2. Prime Cost

It is the sum of

1.Raw Material Consumed

2.Direct Labour

3.Direct Expense

Back

how to write up a set of final accounts
How to write up a set of Final accounts?

What you will learn in this section……

  • The Entry of the Net Cost of Production of Manufacturing a/c into Trading a/c
  • Classification of expenses in the Profit and Loss a/c

Back

how to write up a set of final accounts35
How to write up a set of Final accounts?

Thinking…

What item in Manufacturing account will also appear in Trading a/c?

Back

how to write up a set of final accounts36

Trading a/c

For the year ended 31 Dec, 20-1

$

$

$

Sales

X

Less: Returns Inwards

X

Less: Cost of goods sold

Opening Stock

X

Add: Cost of Production

X

Less: Closing Stock

x

x

Gross Profit c/d

x

How to write up a set of Final accounts?

Back

answer
Answer:

Cost of Production

The amount of the Cost of production in Manufacturing a/c will replace the item Purchases in a manufacturing firms

how to write up a set of final accounts38

Profit and Loss a/c

For the year ended 31 Dec 20-1

$

$

$

Gross Profit b/d

X

Less: Administrative Expense

X

Selling and Distributing Expense

X

Financial Expense

x

X

Net Profit

x

How to write up a set of Final accounts?

While in the Profit and Loss a/c, we divide the expenses under several headings.

Back

how to write up a set of final accounts39
How to write up a set of Final accounts?

1. Administrative Expenses

It refers to the expenses paid during operating business.e.g.

a. Directors’ Remuneration

b. Salaries of Staff

c. Repairs and Maintenance of Office Equipment

d. Insurance, Telephone charges, Rent etc.

Back

how to write up a set of final accounts40

Profit and Loss a/c

For the year ended 31 Dec 20-1

$

$

$

Gross Profit b/d

X

Less: Administrative Expense

X

Selling and Distributing Expense

X

Financial Expense

x

X

Net Profit

x

How to write up a set of Final accounts?

Back

how to write up a set of final accounts41
How to write up a set of Final accounts?

2.Selling and Distributing Expense

It refers to the expenses paid during selling and disturbing of goods.e.g.

  • Selling Commission
  • Advertisement
  • Carriage Outwards
  • Market Research etc.

Back

how to write up a set of final accounts42

Profit and Loss a/c

For the year ended 31 Dec 20-1

$

$

$

Gross Profit b/d

X

Less: Administrative Expense

X

Selling and Distribing Expense

X

Financial Expense

x

X

Net Profit

x

How to write up a set of Final accounts?

Back

how to write up a set of final accounts43
How to write up a set of Final accounts?

3. Financial Expenses

It refers to the expense paid in the financial issues.e.g.

  • Discount allowed
  • Bank Charges,etc.

Back

illustration 2
Illustration 2

FinancialExpense

Bank Charges

Discount Allowed

Interest on Loan

Try to classify the following items into

  • Administrative Expenses
  • Selling and Distributing Expense
  • Financial Expense

Administrative Expenses

Offices Salaries

Provision of Depreciation

Directors’ Renumeration

Telephone Charges

Office Salaries

Bank Charges

Provision for depreciation

Delivery Expense

Discount Allowed

Telephone Charges

Directors’ Renumeration

Advertisement

Selling commission

Interest on Loan

Selling and Distributing Expense

Delivery Expense

Advertisement

Selling Commission

Back

revision what is manufacturing a c
Revision-What is Manufacturing a/c?

- An account used in Manufacturing Firms

  • Shown the cost of goods manufactured
  • Also shown the analysis of the the elements of the cost.

Back

revision why we prepare manufacturing a c
Revision-Why we prepare Manufacturing a/c?
  • Only Trading and Profit and Loss a/c is not a sufficiently explanatory for a manufacturing firms
  • So, we have to open an additional a/c – manufacturing a/c

Back

revision different headings
Revision-Different Headings

Raw Material Consumed -

Direct Labour - Prime Cost

Direct Expense -

Plus

Factory Overhead - GrossProduction Cost

Plus or Less

Work-in-progress of the period

- Net Gross Production Cost

Back

revision different headings48
Revision-Different Headings

- Prime cost- direct costs and expenses

- Factory Overhead- indirect expenses

- Gross cost of production= Prime Cost +Factory Overhead

- Work-in-progress- incomplete goods

- Profit or Loss Manufactured-

Cost of goods Produced< Market Price - Profit

Cost of goods Produced> Market price - Loss

- Net cost of Production

- Figure that transfers to Trading a/c

- Obtained after all adjustment were made

- Administrative, Selling and Distributing and Financial Expense- Classification of all trading expenses

Back