Manufacturing
Accounts
BY INQILAB PAT EL
MAIN CAMPUS
Manufacturing Business
MANY BUSINESS ENTITIES
ENGAGE IN MANUFACTURING
ACTIVITIES AND THIS
INVOLVES:
The purchasing of raw
materials
Incurring labor
and other cost
IN CONVERTING THE RAW
MATERIALS INTO FINISHED
GOODS.
Manufacturing Business
In order to ascertain the cost of producing the
goods a manufacturing account is prepared.
This account is also normally prepared at the
end of the accounting period. Both direct and
indirect expenses associated with the
manufacturing process debited to the
manufacturing account. The balance of this
account representing cost of the goods
produced is then transferred to the trading
account.
Manufacturing Business
The order of presentation of the final accounts is
as under:
(a) Manufacturing Account Part
(b) Trading Account Part
(c) Profit and Loss Account Part
(d) Balance Sheet Part.
Division of Costs
Direct Materials
Prime
Direct Labour
Cost
Production
Direct Expenses
Cost
Plus
Factory Overhead
Plus
Administrative Expenses
Selling & Distribution Expenses
Financial Charges
Total Cost
Production Cost
Prime Cost
Add: Factory Overhead
Production cost
xxxxx
xxxxx
xxxxx
(Production Cost = Prime cost (Direct Cost)+
Factory overhead expenses (Indirect cost)
Prime Cost
Direct Material
Add: Direct Labour
Direct Expenses
Prime Cost
xxxxx
xxxxx
xxxxx
xxxxx
(Prime Cost = Direct Material+ Direct Labour + Direct Expenses)
1. Direct materials
•
•
•
•
•
Costs of the materials used during the period.
Include Opening Inventory of Raw Materials
+ Purchase price of the raw materials and the acquisition costs related to the
purchase.
- Closing Inventory of Raw Materials
Examples:
Opening Inventory of Raw Materials
xxxxx
Add: Purchase of raw materials
Carriage inwards / freight charges
Available for use
Less: Closing Inventory of Raw Materials
Direct Material used
xxxxx
xxxxx
xxxxx
(xxxx)
xxxxx
2. 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
•
•
Wages of a machine operator making a particular item
3. Direct Expenses
•
They refer to the expenses paid according to each unit of production.
•
Examples: Royalties
Prime Cost
Direct Material
Add: Direct Labour
Direct Expenses
Prime Cost
xxxxx
xxxxx
xxxxx
xxxxx
Factory Overhead
(Indirect Manufacturing Costs)
Factory Overhead or Indirect Manufacturing Costs are all
those costs which occur in the factory or other place
where production is being done, but which cannot be
traced to the items being manufactured.
Example:
Wages of Cleaner
Wages of Crane operator
Wages of Supervisors
Rent and Rates of Factory
Depreciation of Plant and Machinery
Factory Power
Factory Lighting
Factory Overhead
(Indirect Manufacturing Costs)
Factory Overhead or Indirect Manufacturing Costs are all
those costs which occur in the factory or other place where
production is being done, but which cannot be traced to the
items being manufactured.
Production Cost
Direct Materials
Prime
Direct Labour
Cost
Direct Expenses
Plus
Factory Overhead
Production
Cost
Work in Process
It refers to the semi-finished goods, which should be included in the cost of goods
manufactured.
The opening inventory of the Work In Process should be added
And
The closing inventory of the Work In Process should be subtracted
Direct Materials
Prime
Direct Labour
Cost
Production
Direct Expenses
Cost
Plus
Factory Overhead
Plus Work in Process (opening)
Less Work in Process (Closing)
Total Cost of Goods
Manufactured
(a) Manufacturing Account
(b) Trading Account
This includes:

Production cost brought down from Manufacturing Account

Opening and Closing Stock of Finished Goods

Sales
(c) Profit & Loss Account
This includes:

Gross Profit brought down from Trading Account

All administrative expenses

All selling and distribution Expenses

All Financial Charges
(d) Balance Sheet
This includes:

All Assets (Current & Fixed)

All Liabilities (Current & Long-term)

All Capital & Drawing and Net Profit or Loss
(d) Balance Sheet
Thank You
MAIN CAMPUS
INQILAB PATEL
inqilab@ruknuddin.com