Manufacturing
Account
Minimum Knowledge Requirement
Knowledge of Double Entry System
Knowledge of Final Account
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
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 Back
Manufacturing Account
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
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…
Back
Is it a sufficient explanatory for
manufacturing firms?
Reason for Manufacturing a/c
No. Such firm will then prepare an additional a/c – the
Manufacturing a/c which shows the factory or works
cost of the goods produced.
Day Books and
Double Entry System
Trial Balance
Trading and
Profit and Loss a/c
Back
Manufacturing a/c
Balance Sheet
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
Characteristics of Manufacturing
a/c
So. Here’re some of the Characteristics:
It is designed to show……
Back
-
-the cost of goods manufactured under the normal
conditions.
-
-The analysis of the elements of cost.
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
Back
How to prepare…
T-Form
Manufacturing a/c
For the Year ended 31 Dec 20-1
Raw Material
$
Opening Stock
x
Add: Purchases
X
Carriage Inwards
$
$
Trading a/c
X
X
Less: Closing Stock
x
X
Direct Labour
Factory Wages
X
Direct Expenses
Royalties
X
Prime Cost
X
To be Continued…
$
x
How to prepare…
Raw Material
All the raw materials consumed in the
production process
Back
T Form
Vertical Form
Back
How to prepare…
T-Form
Manufacturing a/c
For the Year ended 31 Dec 20-1
Raw Material
$
Opening Stock
x
Add: Purchases
X
Carriage Inwards
$
$
Trading a/c
X
X
Less: Closing Stock
x
X
Direct Labour
Factory Wages
X
Direct Expenses
Royalties
X
Prime Cost
X
To be Continued…
$
x
How to prepare…
Direct Labours
Included the labours directly involved in
production
Back
T Form
Vertical Form
Back
How to prepare…
T-Form
Manufacturing a/c
For the Year ended 31 Dec 20-1
Raw Material
$
Opening Stock
x
Add: Purchases
X
Carriage Inwards
$
$
Trading a/c
X
X
Less: Closing Stock
x
X
Direct Labour
Factory Wages
X
Direct Expenses
Royalties
X
Prime Cost
X
To be Continued…
$
x
How to prepare…
Direct Expense
Included the expenses directly involved in
production e.g copyright, royalties
Back
T Form
Vertical Form
Back
How to prepare…
T-Form
Manufacturing a/c
For the Year ended 31 Dec 20-1
Raw Material
$
Opening Stock
x
Add: Purchases
X
Carriage Inwards
$
$
Trading a/c
X
X
Less: Closing Stock
x
X
Direct Labour
Factory Wages
X
Direct Expenses
Royalties
X
Prime Cost
X
To be Continued…
$
x
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
+
Back
+
T Form
Vertical Form
Back
How to prepare…
Continued….
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…
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
Back
T Form
Vertical Form
Back
How to prepare…
Continued….
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…
Gross cost of production =
Prime Cost + Factory Overhead.
- sometimes called the Cost of Production under the
situation of no adjustment for work-in-progress
Prime Cost
Back
+
T Form
Vertical Form
Back
How to prepare…
Continued….
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…
Work-in-progress
Incomplete works at the end and beginning of the year
Back
T Form
Vertical Form
Back
How to prepare…
Continued….
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…
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
Back
T Form
Vertical Form
Back
How to prepare…
Continued….
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…
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
Back
Vertical Form
Back
How to prepare…
Manufacturing a/c
For the Year ended 31 Dec 20-1
Raw Material
$
Opening Stock
x
Add: Purchases
X
Carriage Inwards
$
$
Trading a/c
X
X
Less: Closing Stock
Direct Labour
Factory Wages
x
X
Net cost of Production
X
The figure will transfer
to Trading a/c
Direct Expenses
Royalties
X
Prime Cost
X
$
x
Back
How to prepare…
Sometimes We may use Vertical Form.
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
Prime Cost
X
To be Continued…
x
Back
How to prepare…
Continued……
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
Illustration 1
Raw Material Purchased
Carriages Inwards
Royalties
Factory Expenses
Manufacturing Wages
Raw Material (Opening Stock)
( Closing Stock)
36000
3500
2000
1800
17000
2000
2500
Please used the detail above to calculate:
 Raw Material Consumed
 Prime Cost
Back
Illustration 1
Answer:
1. Raw Material Consumed
Raw Material Consumed = Raw Material ( Opening Stock +
Purchases + Carriages Inwards - Closing Stock )
Opening Stock
Purchases
Carriages Inwards
Closing Stock
2000
36000
3500
41500
2500
39000
Back
Illustration 1
Answer:
2. Prime Cost
It is the sum of
1.Raw Material Consumed
2.Direct Labour
3.Direct Expense
Raw Material Consumed
39000
Direct Labour
2000
Direct Expense
1800
42800
Back
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
How to write up a set of Final
accounts?
Thinking…
What item in Manufacturing account will
also appear in Trading a/c?
Back
How to write up a set of Final
accounts?
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
Gross Profit c/d
Back
x
x
Answer:
Cost of Production
The amount of the Cost of production in
Manufacturing a/c will replace the item Purchases
in a manufacturing firms
How to write up a set of Final
accounts?
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
Net Profit
Back
$
X
x
While in the Profit and Loss a/c, we
divide the expenses under several
headings.
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
How to write up a set of Final
accounts?
Profit and Loss a/c
For the year ended 31 Dec 20-1
$
$
Gross Profit b/d
Less: Administrative Expense
X
X
Selling and Distributing Expense
X
Financial Expense
x
Net Profit
Back
$
X
x
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
How to write up a set of Final
accounts?
Profit and Loss a/c
For the year ended 31 Dec 20-1
$
$
Gross Profit b/d
Less: Administrative Expense
X
X
Selling and Distribing Expense
X
Financial Expense
x
Net Profit
Back
$
X
x
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
1.
2.
3.
Financial Expense
Bank Charges
Discount Allowed
Try toonclassify
the following items into
Interest
Loan

Administrative Expenses
Illustration 2


Selling and Distributing Expense
Financial Expense
1.
Office Salaries
2.
Bank Charges
3.
Provision for depreciation
4.
Delivery Expense
5.
Discount Allowed
6.
Telephone Charges
7.
Directors’ Renumeration
8.
Advertisement
9.
Selling commission
Back10.
Interest on Loan
Administrative Expenses
1. Offices Salaries
2. Provision of
Depreciation
Selling and Distributing Expense
3. Directors’ Renumeration
1. Delivery Expense
4. Telephone Charges
2. Advertisement
3. Selling Commission
Revision-What is Manufacturing a/c?
-
Back
An account used in Manufacturing Firms
Shown the cost of goods manufactured
Also shown the analysis of the the
elements of the cost.
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
Revision-Different Headings
Raw Material Consumed Direct Labour
Direct Expense
-
Prime Cost
Plus
Factory Overhead
-
Gross Production Cost
Plus or Less
Work-in-progress of the period
- Net Gross Production Cost
Back
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 ManufacturedCost 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