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Manufacturing Account

Manufacturing Account

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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