Manufacturing Accounts - Principles of Accounting

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Accounting Balance Sheet Manufacturing Factory Format

Manufacturing Accounts

The businesses which produce and sell the items prepare the following accounts at the end of its

accounting year:-

a. The Manufacturing account (to calculate the total cost of production)

b. The Trading and profit & loss account (to find out the net profit or loss)

c. The balance sheet.(to show the financial position of the business)

The total cost of production = Prime cost + Factory overhead

The Prime cost = Direct material + Direct labour + Direct expenses

Direct material cost = Opening stock of raw materials + purchase of raw materials +

Carriage inwards returns outwards closing stock of raw materials.

Factory overhead expenses = All expenses related to the factory (indirect expenses)

In a manufacturing concern, usually there are three kinds of stocks:

Stock of Raw materials (the materials which are mainly used for production of the item)

Stock of Work in progress (the materials on which some work process have been

completed)

Stock of Finished goods (The materials on which all the production processes are completed and ready

for sale to the customers)

In the examination questions, the stock figures will be given separately.

The format of a manufacturing account

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Page 1 of 6Manufacturing Accounts - Principles Of Accounting

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Format of trading account of a manufacturing concern

The profit & loss account and the balance sheet preparations will be the same as that of a sole traders.

So the students have to follow the previous method for the preparation of these.

Fixed expenses and Variable expenses

Some expenses will remain constant whether the level of activity increases or falls. These

expenses are called fixed expenses E.g. rent of building

The expenses which change with changes in activity are called variable expenses

E.g: cost of materials.

Key points:


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Carriage on raw materials means carriage inwards and it is a part of prime cost.

Carriage outwards is shown in the profit & loss account as an expense.

Royalties paid is to be treated as direct expense.

Depreciation on Plant and Machinery or any other factory asset is to be treated as factory overhead

expense.

Stocks of raw materials and work-in-progress are taken in the manufacturing account and stock of

finished goods is taken in the trading account.

Stocks at the end of the year (raw materials, work-in-progress and finished goods) are shown in the

balance sheet as current assets.

Owners raw materials drawings are shown in the manufacturing account while calculating the prime

cost.

Finished goods drawings are shown in the trading account while calculating the cost of goods sold.

The purchase of finished goods is added with cost of production in the trading account.

The depreciation of any asset used in the office should be shown as an expense in the

profit & loss account.

Cost of ready made items bought for the production of items manufactured should be treated as

direct expense.

Unit cost of production = Total cost of production

No of units produced

MCQ.Q 1. The purpose of preparing the manufacturing account is to calculate:A. Gross profit B.

Manufacturing profit C.Net profit D. Cost of productionQ 2. What does production cost include

in a manufacturing account?

A Factory power B. Purchase of raw materials

CCarriage inwards on raw materials D. All of these

Q 3. Prime cost includes

A. Factory direct wages B. Factory indirect wages

C. Finished goods D. Work in progress

Q 4. The costs of a manufacturing firm are as follows:

What was the prime cost?

A. $10000 B. $15000 C. $12000 D.$17000

Q 5. Prime cost In a Manufacturing account is equal to

A.All factory indirect costs B. All factory costs

B.Direct factory costs only D.Direct materials plus direct expenses

Q 6. Carriage outward in manufacturing concern is included in which heading?

A. Direct expenses B. Factory overhead expenses

C. Administrative expenses D. Selling and distribution expenses

Q 7. Which of the following is not included in the Manufacturing account?

A.Foremans wages B. Depreciation on factory machinery

C. Indirect wages D. Depreciation on office equipmentQ 8. The following table

shows the cost incurred for the production of an item.Direct materials $ 1200

Direct wages $ 700

Manufacturing expenses $ 100

Factory overhead expenses $ 300

What is the amount of prime cost?

A. $ 2300 B. $ 2 000 C. $ 1 700 D. $ 3 000

Q 9. How is the production cost calculated in a manufacturing account?

A. Prime cost + administrative expenses

B. Prime cost + administrative expenses

C. Prime cost + Factory overhead expenses

D. Raw materials + direct labour.

Q 10. Which on of the following is not factory overhead expense?

A. Wages of cleaners B. Carriage on raw materials

C. Factory lighting D. Factory power

Q 11. Which are the stock figures shown in the manufacturing account?

A. Finished goods and raw materials B. Finished goods only

$

Raw materials purchasedDirect

LabourCost of Raw material

consumedFactory overheads

5000

3000

7000

2000


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Assignment questions

Q1) Zena owns a small manufacturing business. The following balances were taken from her books on 30

June 2001:

$

Stocks 1 July 2000

Raw materials 23 300

Finished goods 28 500Stocks 30 June 2001:

Raw materials 25 700

Finished goods 21 500

Purchases of raw materials 265 500

Carriage on sales 3 300

Carriage on raw materials 3 100

Selling expenses 3 500

Bad debts 500

Factory overheads 30 300

Depreciation of factory equipment 14 000

Factory direct expenses 4 000

Factory wages 100 000

Select the appropriate balances and prepare the Manufacturing account for the year

Ended 30 June 2001. Show clearly within the account:

cost of raw materials consumed, prime cost, cost of production

Q2) Justine is a manufacturer of beauty products. The following balances were extracted from her books

on 31 December 2001 after the Manufacturing Account had been prepared.

$ $

Stocks Raw Materials (31 December 2001) 3 530

Work in Progress (31 December 2001) 1 450

Finished Products (1 January 2001) 11 200

Cost of products manufactured 103 780

Sales of finished goods 137 560

Carriage on sales 1 230

Advertising 3 410

Sales staffs commission 8 970

Office expenses 11 860

Bank charges 60

Plant and machinery 51 410

Provision for depreciation on Plant and Machinery 9 030

Trade debtors 13 600

Trade creditors 5 210

Provision for doubtful debts (1 January 2001) 310

Bad debts 460

Cash in hand 90

Bank overdraft 1 740

Capital 60 450

Drawings 3 250

214 300 214 300

The following additional information is available.

1. Stock of finished products at 31 December 2001 was valued at $10 640.

2. During the year, Justine took finished products valued at $600 from the current years

production for personal use. No entries had been made in the books.


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3. Sales staffs commission outstanding amounted to $390.

4. The provision for doubtful debts is to be adjusted to 5% of debtors.

5. $50 for bank charges had not been recorded in the books.

(a) Prepare Justines Trading and Profit and Loss Accounts for the year ended 31 December 2001.

(b) Prepare the Balance Sheet as at 31 December 2001.

Q:3 Allocate the following costs to Manufacturing account and Income statement

Q:4

Farhad owns a small workshop and he makes iron gates. The following information was taken from thebooks on 31 December 2009.

1 January 2010 31 December 2010

$ $

Inventories Raw materials 22,400 20,700

Finished goods 14,400 20,000

Purchases of raw materials 172,100

Carriage on Revenue 4,200

Carriage on raw materials 3,200

Workshop wages 75,600

Sales staff wages 42,100

Raw materials returned to suppliers 700

Workshop light and heat 9,200

Workshop general expenses 16,900

Depreciation of workshop equipment 9,600

Revenues from finished goods 366,000

REQUIRED:

a) Select the appropriate balances and prepare the Manufacturing Account for the year ended 31

December 2010.

b) Prepare the Income statement for the year ended 31 December 2010.

Q:5

The following information for the year ended 31 December 2008 is extracted from the books of Sammad,the owner of a small fruit juice-bottling factory:

1 January 2010 31 December 201

$ $

Inventories

Ingredients (Bulk Orange Juice) 950 1,070

Empty Bottles and Labels 260 230

Bottled Fruit Juice 3,900 4,300

Purchases of:

Eg:Factory rent Manufacturing account

a) Production supervisors salary

b) Insurance of factory building

c) Depreciation of office photocopier

d) Revenue commission

e) Raw material purchased

f) Advertising

g) Manufacturing Electricity

h) Carriage on Revenue

i) Carriage on raw materials

j) Bad debts


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Ingredients (Bulk Orange Juice) 13,400

Bottles and Labels 1,270

Revenue of Bottled Fruit Juice 71,400

Factory Wages 23,430

Supervisors Salary 5,200

Factory indirect expenses 2,690

Depreciation of Plant and Machinery 1,700

You are required to prepare

Q:6 The following information for the year ended 30 September 2003 was extracted from the books

of Preserves Ltd, manufacturers of jam and fruit juices.

1 October 2002 30 September 2003

$ $

Inventories: raw materials 6 800 6 400

jars, lids and labels 10 400 10 000

finished goods 21 000 21 600

Purchases: raw materials 70 600

jars, lids and labels 17 000

Revenues 365 000

Factory wages 36 800

Factory light and power 29 200

Factory machines repairs 11 400

Carriage on raw materials 11 000

Depreciation of plant and machinery 12 600

REQUIRED:

(a) Prepare, in good style, the Manufacturing Account for the year ended

30 September 2003.

(b) Prepare the Income statement for

the year ended 30 September 2003.

Incoming search terms:

1. The Manufacturing Account showing clearly cost of raw materials consumed, prime cost and cost of

production.

2. The income statement for the year ended 31 December 2010

manufacturing account

manufacturing accounts

format for manufacturing account

format of a manufacturing account

manufacturing profit and loss account

manufatrring accoint format

opening stock of raw materials in p&l account

profit and loss manufacturing account

stock material loss account

trading account format for manufacturer

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Manufacturing Accounts - Principles of Accounting