BUSINESS
ORGANISATIONS
 Up until now we have dealt with the accounts
of:



Sole Traders
Partnerships
Companies
 These businesses purchase stock and hope to
resell it to make a profit.
MANUFACTURING
ACCOUNTS
 Lets now consider a business who actually
manufactures (makes) the stock that they
are to sell.
 For example:
Bannerman Trading Company manufacture
desks.
List some of the things/costs
that are involved in producing
a desk:
Cost of Goods Produced
 The manufacturer must ascertain the Cost of
Goods he produces.
 In order to do so, another Account must be
produced:
A MANUFACTURING ACCOUNT
This Account is prepared FIRST and the Cost of
Production is then transferred to the Trading and
Profit and Loss Account
THE MANUFACTURING
ACCOUNT
 This Account contains ALL of the Costs of
Producing the goods.
 These costs can be divided into 2 distinct
groups:


PRIME (First) COSTS
OVERHEADS (Running Costs)
PRIME COSTS
 These costs show the first, direct costs the
business faces in producing the products.
 These are:



DIRECT LABOUR eg Factory Wages
DIRECT MATERIAL eg Cost of Raw
Materials, Carriage on Raw Materials
DIRECT EXPENSES eg Expenses which
would vary directly with the quantity of goods
produced
OVERHEADS
 These are all the expenses of running the
factory, but which cannot be easily traced to
the products being made

They do NOT vary directly with the quantity of
goods produced
Factory Power
Factory Heat +
Light
Factory Rent
Factory
Repairs
Factory Rates
Depreciation of Factory
Machinery
CONCLUSION
TOTAL COST OF PRODUCTION =
PRIME COSTS + OVERHEADS
We now have enough information to look at how a
Manufacturing Account is prepared. Lets try Exercise 1
EXERCISE 1
 Below is the details of PRODUCTION COSTS of
Bannerman Trading Company for the year ended 31
December
1 January Stock of Raw Materials
31 December Stock of Raw Materials
Raw Materials Consumed
Carriage Inwards
Direct Manufacturing Wages
Royalties
Indirect Wages
Rent of Factory
Factory Maintenance Costs
General Indirect Expenses
500
700
8000
200
21000
150
9000
440
400
310
WORK IN PROGRESS
 Since the Manufacturing Account has to show the Cost of
Goods completed during the Accounting period, an
adjustment is required for goods partly completed at the
beginning and end of the accounting period
 Work-in-progress is the term given to goods only partly
completed at the beginning and end of the financial year
 We can therefore have an
 Opening Stock of Work in Progress
 Closing Stock of Work in Progress
Opening Stock of W-In-P
 Goods only PART COMPLETE at the
beginning of the accounting period must
be included in this accounting period
since this is when they will have been
completed and therefore available for
sale
Closing Stock of W-In-P
 Goods only PART COMPLETE at the
end of the accounting period must be
carried forward to the next accounting
period, since this is when they will be
completed.
 As such they should NOT be included
in this year’s costs.
W-In-P Rule
 ADD Opening Stock of Work in
Progress
 SUBTRACT Closing Stock of Work in
Progress
Exercise 1 cont
 Work in Progress at 1 Jan £400
 Work in Progress at 31 Dec £650
 Lets complete the Manufacturing
Account using this information.