Topic 11-Manufacturing Account

8/2/2019 Topic 11-Manufacturing Account

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TOPIC 11ACCOUNTING

FOR

MANUFACTURING


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Manufacturing consists of activities andprocess that convert raw materials into

finished goods.

Classification of cost behaviour.Manufacturing cost is any cost involved in

a process of producing a product.


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Types of cost behaviour.1. Fixed cost Costs that remain the same in total regardless of

changes in the activity level. Ex. Supervisory salaries and depreciation

Fixed cost per unit vary inversely with activity. As

volume increases, unit cost decline and vice versa.


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Cost

10,000

2,000 10,000

Units producedExample:

At 2,000 units, the unit cost is RM5 (RM10,000 2,000).

When 10,000 units produced, the units costs only RM1

RM10 000 10 000 unit .


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2. Variable Cost Costs that vary in total directly and proportionately with the

changes in the activity level.

Ex. Direct material, direct labour

The cost remain the same per unit at every level per activity.

Costs (RM)

Units produce

Ex. At 2,000 units, the unit costs is RM10 (RM20,000/2,000).

When 10,000 units produced, the unit costs remains at

RM10 (RM100,000 /10,000 unit).


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3. Mixed Cost Costs that contain both variable element and fixed

element.

Mixed costs change in total. It does not change inproportion with the changes in the activity level.

Cost(RM)

variable costs

fixed costs

MilesEx. Assume that local rental of tow truck includinginsurance, are RM50 per day plus RM0.50 cents per

mile.


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The elements of manufacturing costs:- manufacturing cost consists of Direct material: material and parts used directly

during the manufacturing process.

Direct labour: the work of factory employees that aredirectly involved in producing the product.

Manufacturing overhead: costs that are indirectly

associated with the manufacturing of the finishedgoods. Ex. Indirect material, indirect labour,

depreciation on factory buildings.


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Direct Material + Direct Labour

+ Other Direct Costs

Prime Cost

Prime Costs + Manufacturing Overhead

Manufacturing Costs

Selling +Administrative

expenses

Period Costs

Direct Material + Direct Labour +Other Direct Costs

Prime Costs

Prime Costs + Manufacturing Overhead

Manufacturing Costs

Selling + Administrative

Expenses

Period Costs


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PRODUCT VERSUS PERIOD COSTSManufacturing Costs

Direct MaterialPrime Costs

Direct LabourConversionCosts Manufacturing Overhead

Non-manufacturing CostsSelling Expenses

Period CostsAdministrative Expenses

Direct MaterialsDirect Labour

Manufacturing Overhead

Selling Expenses

Administrative Expenses

Prime Costs

ConversionCosts

Product Costs

Period Costs


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Product Costs costs that are necessary and integral part ofproducing the finished product.

Direct labour and manufacturing overhead are incurred inconverting raw materials into finished goods, these costselements are often referred to as conversion costs.

Period costs costs that are identified with a specific time periodrather with a salable product. These costs relate to non-manufacturing costs and therefore are not inventoriable costs.


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Manufacturing Costs in Financial StatementsFormat Manufacturing Accounts

ABC Manufacturing CompanyManufacturing account for the year ended December 2001

Direct Materials RM RMRaw material as at 1 January 2001 xxAdd: Purchases of Raw Material xx

Carriage Inward xxImport Duty xx

Total Raw Material Available for Use xxx(-) Raw material as at 31 December 2001 (xx)DIRECT MATERIAL USED xxxDirect LabourWages xxxDirect Expenses xxxPRIME COSTS xxx


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Continue..PRIME COSTS xxx

Overhead CostsIndirect Labor xxFactory repairs xxDepreciation factory machine xxTOTAL OVERHEAD COSTS xxxTOTAL MANUFACTURING COSTS xxxAdd: WIP Opening xxLess: WIP Closing (xx)COST OF GOODS MANUFACTURED XXX


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ABC Manufacturing CompanyIncome Statement for the year ended December 2001

RM RMSales xxxLess: Cost of Goods Sold:Finished goods 1 Jan xxAdd: Cost of goods manufactured xxGoods Available for Sale xxLess: Finished goods 31 Dec (xx)COST OF GOOD SOLD xx

GROSS PROFIT XXLess: Operating ExpensesSelling and Distribution Expenses xxAdministrative Expenses xx

NET / LOSS XX

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Topic 11-Manufacturing Account