GRADE 11
WEEK 23 - Lesson 1 of 16
LESSON
73
MANUFACTURING
REVISION GRADE 10 - WORKSHEET 1
In grade 10 and 11 we have learnt about service and trading concerns. In these types of
businesses the goods that are sold were bought from a supplier and then re-sold.
We will now learn about manufacturing businesses.
The manufacturing concern will first manufacture (make) the goods from raw materials and
then sell them to their customers. Making or manufacturing goods will involve a process.
Manufacturing is a process of taking raw materials and make it into completed products.
These completed products are called finished goods.
Some processes are very simple. An example is making “ice lollies” which involves filling
plastic bags with flavoured water, sealing the plastic bag and then freezing them. The lollies
that we buy are the finished goods
On the other hand the manufacturing process may be very complicated. An example is
manufacturing a motor car. Look inside the engine compartment of a motor to see how
many parts will have to be put together before the motor car is complete.
Aim of a manufacturing concern
In all cases the aim of manufacturing goods is to be able to sell the goods at a profit. In
order to be able to make a profit we must sell the goods for more than it cost to make.
It is, therefore, very important to be able to calculate the total cost to manufacture the goods
so that we can accurately calculate the selling price.
73 Accounting Grade 11 - CAPS
1
REVISION GRADE 10 - WORKSHEET 2
PRODUCTION COSTS: DIRECT & INDIRECT COSTS
Let us make a table
What do we need to make a table?
 wood
 steel
 nails / screws
 varnish
 glue
 water and electricity
 workers who make the tables
 supervisors
 security to protect the factory
 cleaners and cleaning material
 insurance for the factory
 rent for the factory
 machinery
Let us name the resources that were used to make a table


wood
steel



nails / screws
varnish
glue

workers who make the tables



supervisors
security to protect the factory
cleaners




cleaning material
insurance for factory
rent for factory
electricity for factory
Direct raw materials
Indirect raw materials
Direct labour
Indirect labour
Overhead costs
depreciation on factory machinery = overhead costs
Machinery
= fixed assets
73 Accounting Grade 11 - CAPS
2
Let us revise these concepts.
Direct Raw material costs
The material that goes into the production of the finished goods
and can be directly identified with the final product,
e.g. wood is the raw material to make a table.
It is material that I can touch and see and feel.
Indirect material costs
This is an insignificant part of the finished product, e.g. the nails,
varnish and glue are indirect material costs.
Direct labour costs
This is the amount paid to workers who actually make the
product (directly involved in making the product)
Indirect labour costs
This is the amount paid to workers in the factory who are not
directly involved with the making of the product.
Factory overhead costs
(indirect costs)
These are indirect costs.
These are the expenses to run the factory, but none of them
are directly involved with the making of the product.
Indirect labour and indirect materials are treated as part of
manufacturing overheads
The word used to describe a single product made in the
factory
Unit
BASELINE ACTIVITY 1
LABOUR COSTS
REQUIRED
The following table shows the people who are working in the factory that produces tables.
Classify the costs by making a tick in the appropriate columns.
Direct labour
costs
Work done by person
Factory worker making the tables
Cleaner
Security guard
Foreman
Person looking after the stock
73 Accounting Grade 11 - CAPS
3
Indirect labour
costs
BASELINE ACTIVITY 2
DIRECT / INDIRECT COSTS
REQUIRED
Make a cross to indicate which items can be regarded as Direct costs / Indirect costs
Direct
Indirect
Cost item
costs
costs
Rent of factory
Wages of cleaners
Wages of employees using tools working on the product.
Insurance of the equipment in the factory plant.
Maintenance of the factory buildings.
Cost of raw materials included in the finished products.
Depreciation on factory equipment.
Consumables issued to the factory
BASELINE ACTIVITY 3
PRODUCTION COSTS
REQUIRED
Identify whether the following production costs are Direct Material Cost, Direct Labour Costs
or Factory Overhead costs. Tick the correct column.
Description of costs
Fabric used to make jackets
Cleaning materials
Salary of the Security guard
Wood used to make a chair
Wages of workers who assemble
(put together) a motor car.
Zips sewn into a pair of trousers
Rent of the factory premises
Salary of the factory supervisor
Pension fund contributions for the
factory workers.
Wages paid to workers who sew a
garment.
Insurance premiums for the
factory.
73 Accounting Grade 11 - CAPS
Direct Material
costs
4
Direct Labour
Costs
Factory
Overhead Costs
ANSWERS
73
BASELINE ACTIVITY 1
LABOUR COSTS
Direct
labour
costs
X
Work done by person
Factory worker making the tables
Cleaner
Security guard
Foreman
Person looking after the stock
Indirect
labour
costs
X
X
X
X
BASELINE ACTIVITY 2
DIRECT / INDIRECT COSTS
Cost item
Direct costs
Rent of factory
Wages of cleaners
Wages of employees using tools working on the
product.
Insurance of the equipment in the factory plant.
Maintenance of the factory buildings.
Cost of raw materials included in the finished products.
Depreciation on factory equipment.
Consumables issued to the factory
73 Accounting Grade 11 - CAPS
5
Indirect costs
x
x
x
x
x
x
x
x
BASELINE ACTIVITY 3
PRODUCTION COSTS
Description of costs
Fabric used to make jackets
Cleaning materials
Salary of the Security guard
Wood used to make a chair
Wages of workers who
assemble (put together) a
motor car.
Zips sewn into a pair of
trousers
Rent of the factory premises
(plant)
Salary of the factory
supervisor
Pension fund contributions
for the factory workers.
Wages paid to workers who
sew a garment.
Insurance premiums for the
factory.
73 Accounting Grade 11 - CAPS
Direct Material
costs

Direct Labour
Costs
Factory
Overhead
Costs










6
CHALKBOARD SUMMARY / TRANSPARENCY
Factory floor where the products are produced
LABOUR COSTS
Direct labour The person making the
product
Indirect labour
(not directly involved in the making of the product)
(cleaner)
(foreman)
73 Accounting Grade 11 - CAPS
(security)
7