manufacturing account. 16th may_2009
TRANSCRIPT
PRINCIPLES OF ACCOUNTSMANUFACTURING ACCOUNTS
PRESENTED BY:MFUTA FM
KABUNDI HIGH SCHOOL
MANUFACTURING ACCOUNTS
• The manufacturer is involved or engaged in business of purchasing raw-materials and converting them into finished products which are later sold.
MANUFACTURING ACCOUNTS
• The manufacturer is specially concerned with the costs of manufacturing incurred in the manufacturing process
MANUFACTURING ACCOUNTS
• Therefore, the manufacturing account is concerned with ascertaining the cost of production
MANUFACTURING ACCOUNTS
• Thus, for these firms, a manufacturing account is prepared in addition to the trading and profit and loss account
MANUFACTURING ACCOUNTS
• Therefore, a Book-keeper is expected to have three stocks as opening stock. These are:
a. Stock of Raw-materials
b. Stock of work-in-progress
c. Stock of finished goods
MANUFACTURING ACCOUNTS
• NB. These three stocks will appear in the Balance Sheet as assets of the business
• The preparation of this account requires the recognition of two types of factory costs. They are:
1) DIRECT COSTS
• These are the first costs to be incurred since they are directly involved in the production of goods e.g. raw materials, factory wages, carriage on raw materials, direct expenses etc
2) INDIRECT COSTS
• These are the costs which are not directly embodied in the production but are necessary to the production process e.g. Factory rent, Factory rates, Factory lighting and heating, Factory Wages, Factory fuel and power etc
MANUFACTURING ACCOUNTS
• The manufacturing account, therefore, is divided into two sections:
• The first one is the Prime Cost and the second one is the Cost of goods manufactured or produced commonly known as the Cost of Production
EXAMPLE 1
• From the following particulars extracted from the books of W. Kabanda, a manufacturer of Electronic goods, prepare the manufacturing account for the year ended 31th December, 2008.
EXAMPLE 1
1 Jan 2008 stock of raw materials 80 000
31 Dec 2008 stock of raw materials 105 000
1 Jan 2008 work-in-progress 35 000
31 Dec 2008 work-in-progress 42 000
Wages: Direct 396 000
Indirect 255 000
Purchases of raw materials 870 000
EXAMPLE 1
Fuel and power 99 000
Direct expenses 14 000
Lubricants 30 000
Carriage inwards on raw materials 20 000
Factory rent 72 000
Depreciation of factory plant and
Machinery 42 000
EXAMPLE 1
Insurance of factory building and
Plant 150 000
General factory expenses 33 000
Factory internal transport
Expenses 18 000
SOLUTION
W. KABANDA
MANUFACTURING ACCOUNTS
AS AT 31 DECEMBER, 2008
K K K
Opening stock of R. M.
Add: Purchases of R.M.
Add: Carriage on R.M.
Total cost of R Materials
80 000
870000
950000
20000
970000
SOLUTION
Less: Closing stock of R. Materials
Cost of RM Consumed
Add: Direct expenses
Direct Wages
Direct expenses
Total D. expenses
PRIME COST
396000
14000
105000
865000
410000
1275000
SOLUTION
Add: Indirect expenses
Fuel and Power
Indirect expenses
Lubricants
Rent
Depreciation of plant
Internal transport
Insurance
General Factory Exp.
Total Overhead Exp.
99000
255000
30000
72000
42000
18000
150000
33000
699000
SOLUTION
Add: work-in-progress 1/01/08
Less: work-in-progress 31/12/08
Cost of PRODUCTION
1974000
35000
2009000
42000
1967000
EXERCISE
1. The following figures relating to the year 2008 have been taken from the books of Chibwe Jackson, a manufacturer of mealie meal.
Stocks at 1/01/08
Raw materials 285 000
Work-in-progress 243 100
Purchases of R Materials 467 000
EXERCISE
Carriage on Raw Materials 6 400
Direct factory wages 396 000
Factory power, light & heating 163 000
Depreciation of plant & machine 38 000
Warehouse charges & expenses 45 000
Royalties 150 000
General Factory expenses 38 000
EXERCISE
Stocks at 31/12/08
Raw Materials 268 000
Work-in-progress 274 000
REQUIRED
Prepare the manufacturing account as at
31/12/08