S5 Manufacturing Account/LWL
Manufacturing Accounts (
)
A.
Function of a Manufacturing Acccount
For those businesses which deal with manufacturing products. It is common in
today’s business to act both as manufacturer (
) and retailer (
).
e.g Crocodile, Bossini, G2000, U2.
What is the advantage as being a manufacturer as well as a retailer?
B.
Division of Costs
The purpose of a Manufacturing Account is to ascertain
Cost of Production (
).
Cost of Production = Prime Cost + Factory Overheads + Opening Work in
Progress – Closing Work in Progress
C.
Prime Cost (
)
Prime cost is the DIRECT expenses which can be traced back to each unit of
production. It consists of:
(1)
Direct Materials (
)
(2)
Direct Wages (
)
(3)
Direct Expenses e.g. Royalty (
)
D.
Factory Overheads (
)
Indirect expenses in the factory which helps production of goods.
e.g. Indirect wages, rent and rates of the factory, depreciation of plant and
machinery, factory fuel and power, etc.
E.
)
Work in Progress (
Where goods have not been completed, they cannot be sold in the year. For
ease of accounts recording, the ‘whole’ of the Work-in-Progress is calculated.
The treatment is the same as in Opening Stock and Closing Stock,
i.e. + Opening WIP – Closing WIP
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S5 Manufacturing Account/LWL
F.
Format
Company Name
Manufacturing, Trading and Profit and Loss Account
for the year ended 31 December 200X
_________________________________________________________________
$
$
$
Raw Materials:
Opening Stock
Purchases (Raw Materials)
Add : Carriage Inwards
xxx
xxxx
xx
_____
xxxx
(xx)
_____
Less: Return Outwards
xxxx
______
xxxx
(xx)
____
Less: Closing Stock (Raw materials)
Cost of Raw Materials Consumed
Direct Materials
Direct Expenses (Royalty)
xxxx
xxx
xxx
______
XXXX
PRIME COST
FACTORY OVERHEADS:
Factory rent and rates
Fuel and power
Indirect wages
Lubricants (
)
Depreciation of plant and machinery
xxx
xxx
xx
xxx
xxx
_____
XXXX
________
XXXX
WORK-IN-PROGRESS
Opening Work-in-Progress (1.1.200x )
Less: Closing Work-in-Progress (31.12.200y)
xxxx
(xxx)
_____
PRODUCTION COST OF GOODS COMPLETED c/d
2
XXX
_______
XXXX
S5 Manufacturing Account/LWL
=====
(Trading Account)
Finished Goods
Sales
Less: Cost of Goods Sold
Opening Stock
xxxx
xxx
Add: Production Cost of Goods Completed b/d
xxxx
_____
xxxx
(xxx)
_____
Less: Closing Stock
GROSS PROFIT
Less : Expenses
Administrative Expenses (Office expenses)
e.g. Office rent and rates
Administrative salaries
General adminstration expenses
Depreciation of office furniture, office equipment
(xxx)
_____
XXX
Selling and Distribution Expenses
e.g. Advertising expenses
Sales Commissions
Carriage Outwards
Financial Expenses
e.g. Discounts allowed
Bad Debts
Provisions for Bad Debts
(xxx)
_____
NET PROFIT FOR THE YEAR
XXX
====
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S5 Manufacturing Account/LWL
Balance Sheet as at 31 December 200X
FIXED ASSETS
Cost
Net
Book
Value
xxxxx
xxx
xxxx
xxxx
xxx
xxxx
_______________________________
xxxxx
xxx
xxxx
===============
Machinery
Office Equipment
CURRENT ASSETS
Stock : Raw Materials
Work in Progress
Finished Goods
Debtors
Less: Provisions for Bad Debts
Accumulated
Depreciation
xxx
xx
xxx
xxx
(xxx)
_____
Prepaid Expenses
Bank
Cash
Less: CURRENT LIABILITIES
Creditors
xxx
xx
xxx
xxx
_____
xxxx
xxx
Accrued expenses
xx
___
Working Capital
(xxx)
_____
xxx
_____
xxxx
====
FINANCED BY:
Capital on 1.1.200x
Add: Net Profit for the year
xxxx
xxx
______
xxxx
(xxx)
_____
xxxx
====
Less: Drawings
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S5 Manufacturing Account/LWL
G.
Difficult Entries:
Example:
Trial Balance for the year ended 31 December 2002
Dr.
$
Opening Stock:
Loose Tools
Purchases of loose tools
Carriage inwards
Wages and salaries: administrative staff
Cr.
$
12,000
36,000
195,000
420,000
Notes:
1. Closing Stock: Loose Tools
$8,000
2. Salaries of administrative staff included an amount of $80,000 payable to th
factory manager as a bonus.
Answer:
Manufacturing Account for the year ended 31 December 2002
_________________________________________________________________
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S5 Manufacturing Account/LWL
Exercises
Question 1
Tictac Ltd. Manufactured and sold sports shoes. It had also decided to import
genuine leather shoes to meet the needs of the local consumers. The following
balances were extracted from the books on 31 December 1990:
$
Carriage inwards: shoes imported
62,300
Carriage outwards
6,500
Electricity
5,600
Factory expenses
44,000
Manufacturing wages
137,500
Office expenses
19,700
Office furniture and fixtures at cost
121,000
Opening stocks:
Finished goods at cost
52,300
Work in progress at cost
23,800
Plant and machinery at cost
308,000
Purchases: shoes imported
352,000
Rates and insurance
8,300
Raw materials consumed
354,900
Returns inwards: Shoes manufactured
13,400
Office salaries
146,800
Sales:
Shoes manufactured
925,300
Shoes imported
538,600
Selling expenses
36,200
Additional information:
(i) Closing stocks valued at cost:
$
Shoes manufactured
Shoes imported
55,400
Work in progress
36,700
(ii) From 1 January 1990 onwards, the manufactured goods are transferred to the
trading account at factory cost plus 25% profit loading.
(iii) Depreciation is to be provided at 10% on cost for office furniture and fixtures
and plant and machinery.
(iv) The expenses on electricity, and rates and insurance are chargeable three-fifths
to the factory and the balance to the office.
(v) On 1 July 1990, the company issued for cash $300,000 10% debentures
repayable at the end of June 1995.
(vi) On 31 December 1990, accrued office salaries amounted to $13,200 and the
prepaid insurance premium was $2,300.
REQUIRED:
Prepare for Tictac Ltd. The following accounts for the year ended 31 December
1990:
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S5 Manufacturing Account/LWL
(a)
A manufacturing account showing the prime cost and the total cost of
manufactured shoes transferred to the trading account.
(b)
A trading and profit and loss account showing separately the gross
profit on sales of manufactured shoes and imported shoes.
(91Q.9)
Question 2
Success Limited is a retailer of kitchenware. Most goods it trades are purchased
from various suppliers in a finished form. In addition, the company manufactures
several types of kettles. The bookkeeper drew up the following trial balance at 30
April 1996:
$
Ordinary share capital of $1 each
General reserve
Retained profits
15% long-term loan
Machinery – at cost
- accumulated depreciation as at 1 May
1995
Motor vehicles – at cost
Stocks at 1 May 1995
Raw materials
Manufactured goods
Other goods
Debtors
Creditors
Bank
Sales
Purchases – Raw materials
- Other goods
Salaries
Rent and rates
Electricity
Interest on loan
Sundry expenses
$
200,000
23,000
164,000
120,000
400,000
100,000
160,000
20,000
10,000
170,000
160,000
48,000
50,000
2,200,000
430,000
1,150,000
257,000
22,000
10,500
9,000
7,100
____________
2,855,600 2,855,600
======== ========
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S5 Manufacturing Account/LWL
Additional information:
(i)
Depreciation is to be provided using the reducing balance method at the
following rates:
Motor vehicles – 12.5% per annum
Machinery – 10% per annum
The motor vehicle was purchased in 1996. It is the company’s policy to
charge a full year’s depreciation in the year of acquisition.
(ii)
Salaries include wages of $54,000 paid to the kettle-making employees.
(iii) Rates prepaid at 30 April 1996 amounted to $2,000.
(iv)
Accruals at 30 April 1996 were:
Electricity
$1,500
(v)
The apportionment of rent and rates and electricity to the kettle-making
department is 25%.
(vi)
Stocks at 30 April 1996 were:
$
Raw materials
40,000
Manufactured goods
12,500
Other goods
215,000
(vii) The directors proposed to transfer 440,000 of the profits to genral reserve
and to declare a final dividend of $0.50 per share.
REQUIRED:
(a) a manufacturing, trading and profit and loss account (with the section on
appropriations) for the year ended 30 April 1996: and
(13 marks)
(b) a balance sheet
(7 marks)
(97 Q.7)
Question 3
The following trial balance was extracted from the books of Rock Limited, a candy
manufacturer, on 30 April 1999:
$
$
Ordinary share capital of $1 each
240,000
General reserve
50,000
Retained profits
48,423
Machinery – at cost
873,800
- accumulated depreciation as at 1
167,180
May 1998
Motor vehicles – at cost
134,240
- accumulated depreciation as at 1
74,280
May 1998
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S5 Manufacturing Account/LWL
Stock as at 1 May 1998
Raw materials
Work in progress
Finished goods
Debtors and creditors
Sales
Purchases of raw materials
8% debentures (issued in 1990)
Bank
Wages
Salaries
Rent and rates (3/5 office; 2/5 factory)
Selling expenses
165,300
27,200
72,910
127,500
83,920
2,186,400
936,440
200,000
70,560
60,790
240,680
243,620
97,163
________
3,050,203
========
_________
3,050,203
=======
Additional information:
(i) Stock as at 30 April 1999:
$
Raw materials
97,200
Work in progress
30,200
Finished goods
88,400
(ii)
Depreciation was to be provided for:
Machinery – 20% on cost
Motor vehicles – 25% on net book value
(iii) Analysis of the wages figure revealed:
$
Direct manufacturing
48,632
Factory maintenance
12,158
(iv) Accruals at 30 April 1999 were:
$
Debenture interest
?
Rent
4,380
(v)
Rock Limited recently agreed to act as the consignee for Mountain Sweet
Limited at a commission of 10% on sales. Consignment sales of $115,000
were credited to the sales account and consignment expenses of $26,500 were
included in selling expenses. The unsold consignment goods were included
in the closing stock of finished goods at $25,000. No information about the
sales has been given to the consignor and no settlement has yet been made.
(vi)
The directors proposed to transfer $20,000 of the profits to general reserve and
declare a final dividend of 30%.
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S5 Manufacturing Account/LWL
REQUIRED TO PREPARE:
(a) a manufacturing, trading and profit and loss account (with the section on
appropriations) for the year ended 30 April 1999; and
(11 marks)
(b) a balance sheet as at the same date.
(9 marks)
(99 Q.9)
Question 4
The following information is supplied by the bookkeeper of the Overseas
Manufacturing Company for the year ended 31 March 2001:
$
Stocks, 1 April 2000
Raw materials
Finished goods
Work in progress
Sales
Sales commission
Wages and salaries
Direct labour
Indirect labour
Administrative staff
Purchases of raw materials
Carriage inwards
Carriage outwards
Electricity and water
Other production expenses
Other administration expenses
Plant and machinery, at cost
Office equipment, at cost
Stocks, 31 March 2001
Raw materials
Finished goods
Work in progress
3,150,000
4,470,000
2,745,000
77,280,000
1,512,000
24,930,000
4,890,000
4,203,000
16,936,000
195,000
896,000
1,035,000
4,980,000
2,565,000
6,000,000
3,800,000
2,370,000
2,625,000
2,820,000
Additional information:
(i)
Depreciation was to be provided for:
Plant and machinery 20% on cost
Office equipment
25% on cost
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S5 Manufacturing Account/LWL
(ii)
(iii)
(iv)
Electricity charges of $165,000 were in arrears at 31 March 2001.
Electricity and water was to be apportioned as follows:
Factory
80%
Administration
20%
Salaries of administrative staff included an amount of $80,000 payable to the
factory manager as a bonus.
REQUIRED:
Prepare the manufacturing and trading accounts of Overseas Manufacturing
Company for the year ended 31 March 2001, showing clearly the cost of raw
materials consumed, the prime cost, the production cost of finished goods and
gross profit.
(10 marks)
(2001 Q.5)
Question 6
On 30 April 2002, the following balances were extracted from the books of Wilson
Manufacturing Company:
$
9,890,400
4,372,000
58,000
83,840
Sales
Purchases of raw materials
Carriage inwards
Carriage outwards
Stocks, 1 May 2001
Raw materials
Work in progress
Finished goods
Plant and machinery, at cost
Office equipment, at cost
Rent and rates
Electricity and water
Wages and salaries
Direct labour
Indirect labour
Administrative staff
Repairs to machinery
Other production expenses
225,522
30,180
194,500
980,000
385,000
395,250
134,400
491,100
240,000
910,150
18,928
326,400
198,685
Other administrative expenses
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S5 Manufacturing Account/LWL
Additional information:
(i) Stocks as at 30 April 2002:
(ii)
(iii)
(iv)
(v)
$
Raw materials
115,290
Work in progress
94,840
Finished goods
181,900
Depreciation was to be provided for:
Plant and machinery
15% on cost
Office equipment
20% on cost
Salaries of administrative staff included an amount of $100,000 paid to the
factory manager.
Electricity and water was to be apportioned as follows:
Factory
75%
Administration
25%
Rent and rates was to be apportioned as follows:
Factory
80%
Administration
20%
REQUIRED:
(a) Briefly explain the difference between direct costs and indirect costs. (2
marks)
(b) Calculate the following for Wilson Manufacturing Company for the year
ended 30 April 2002:
(i) prime cost;
(3 marks)
(ii) total factory overheads; and
(3 marks)
(iii) production cost of each unit of finished goods, assuming that Wilson
Manufacturing Company had produced 400,000 units of finished goods
during the year.
(3 marks)
(c) Prepare the trading account of Wilson Manufacturing Company for the
year ended 30 April 2002.
(3 marks)
(2002 Q.2)
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