Manufacturing Account

1
Manufacturing Account
2
Production Cost

• Production cost
• Prime cost / Direct cost Factory overhead
  expenses / Indirect cost

3

• 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

4

• 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

5

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

6
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 (opening balance purchase
  closing balance)
• Indirect labour
• wages, salaries, bonus or commission to cleaners,
  crane drivers, foremen, supervisors and
  production managers.

7

• 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

8
Work in Progress

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

9
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

10
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

11
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

12

• 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

13

• 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

14

• 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.

15
Format of Manufacturing, Trading and Profit and
loss account
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Manufacturing, Trading and Profit and Loss
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
Labour

X Royalties

X Prime Cost

X Factory Overhead Expenses Loose
Tools (opening bal. purchases closing bal.)
X Rent (e.g. 25)
X Production
Managers salaries
X Factory Power
X Maintenance
of plant Machinery X
Depreciation of Plant Machinery
X X

X
Direct material
Direct labour
Direct Expenses
Overhead
17

Add Opening Work in Progress
X Less Closing
Work in Progress
X Production Cost of Goods
Completed
X Factory profit/(loss)

X Transfer price of Goods Completed
X
Sales

X Less Returns inwards
(X)


X Less COGS Opening stock of finished goods
X
Production cost/Transfer price of Gds completed
X Less Returns outwards
(X) Fire Loss

(X) Less Closing stock of finished goods
(X) X Gross Profit

X Add Factory Profit

X Add Discount Received

X

X
The goods are transferred to trading a/c at
production cost/ transfer price
18

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 Provision for
Unrealized Profit
X Fire Loss
X X Net
Profit
X