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Manufacturing Accounts

Manufacturing Accounts. Al madrasathul munavvara. 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.

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Manufacturing Accounts

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  1. Manufacturing Accounts Al madrasathulmunavvara

  2. 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.

  3. 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.

  4. (a)Manufacturing Business The order of presentation of the final accounts is as under: (a) Manufacturing Account Part (b) Income Statement (Trading AC Part) (c) Income Statement (Profit and Loss AC Part) (d) Balance Sheet Part.

  5. Division of Costs Direct Materials Direct Labour Direct Expenses Plus Factory Overhead Plus Administrative Expenses Selling & Distribution Expenses Financial Charges Prime Cost Production Cost Total Cost

  6. Production Cost Prime Cost xxxxx Add: Factory Overhead xxxxx Production cost xxxxx (Production Cost = Prime cost (Direct Cost)+ Factory overhead expenses (Indirect cost)

  7. Prime Cost Direct Material xxxxx Add: Direct Labourxxxxx Direct Expenses xxxxx Prime Cost xxxxx (Prime Cost = Direct Material+ Direct Labour + Direct Expenses)

  8. 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 xxxxx Carriage inwards / freight charges xxxxx Available for use xxxxx Less: Closing Inventory of Raw Materials (xxxx) Direct Material used xxxxx

  9. 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

  10. Prime Cost Direct Material xxxxx Add: Direct Labourxxxxx Direct Expenses xxxxx Prime Cost xxxxx

  11. 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

  12. 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.

  13. Production Cost Prime Cost Production Cost Direct Materials Direct Labour Direct Expenses Plus Factory Overhead

  14. 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 Direct Labour Direct Expenses Plus Factory Overhead Plus Work in Process (opening) Less Work in Process (Closing) Prime Cost Production Cost Total Cost of Goods Manufactured

  15. (a) Manufacturing Account

  16. (b) Income Statement • This includes: • Production cost brought down from Manufacturing Account • Opening and Closing Stock of Finished Goods • Sales

  17. (c) Income Statement • This includes: • Gross Profit brought down from Trading Account • All administrative expenses • All selling and distribution Expenses • All Financial Charges

  18. (d) Balance Sheet • This includes: • All Assets (Current & non-current) • All Liabilities (Current & non-current) • All Capital & Drawing and Net Profit or Loss

  19. (d) Balance Sheet

  20. Thank You Al madrasathulmunavvara Ali naseerabdulraheem alinaseer1407@gmail.com

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