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Manufacturing Account

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  1. ManufacturingAccount Minimum Knowledge Requirement • Knowledge of Double Entry System • Knowledge of Final Account

  2. 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

  3. 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

  4. 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

  5. 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

  6. 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

  7. 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

  8. 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

  9. 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

  10. 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…

  11. How to prepare… Raw Material All the raw materials consumed in the production process T Form Vertical Form Back

  12. 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…

  13. How to prepare… Direct Labours Included the labours directly involved in production T Form Vertical Form Back

  14. 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…

  15. How to prepare… Direct Expense Included the expenses directly involved in production e.g copyright, royalties T Form Vertical Form Back

  16. 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…

  17. 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

  18. 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….

  19. 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

  20. 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….

  21. 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

  22. 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….

  23. How to prepare… Work-in-progress Incomplete works at the end and beginning of the year T Form Vertical Form Back

  24. 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….

  25. 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

  26. 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….

  27. 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

  28. 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

  29. 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…

  30. 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……

  31. 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

  32. 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

  33. 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

  34. 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

  35. How to write up a set of Final accounts? Thinking… What item in Manufacturing account will also appear in Trading a/c? Back

  36. 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

  37. Answer: Cost of Production The amount of the Cost of production in Manufacturing a/c will replace the item Purchases in a manufacturing firms

  38. 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

  39. 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

  40. 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

  41. 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

  42. 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

  43. 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

  44. 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

  45. 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

  46. 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

  47. 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

  48. 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