manufacturing accounts
DESCRIPTION
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. - PowerPoint PPT PresentationTRANSCRIPT
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Manufacturing Accounts
AL MADRASATHUL MUNAVVARA
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Manufacturing BusinessMANY BUSINESS ENTITIES ENGAGE IN MANUFACTURING ACTIVITIES AND THIS INVOLVES:
The purchasing of raw materialsIncurring laborand other cost
IN CONVERTING THE RAW MATERIALS INTO FINISHED GOODS.
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Manufacturing BusinessIn 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.
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(a)Manufacturing BusinessThe 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.
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Division of CostsDirect MaterialsDirect LabourDirect Expenses
Plus Factory Overhead
Plus Administrative Expenses Selling & Distribution Expenses Financial Charges
Prime Cost Productio
n Cost Total
Cost
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Production CostPrime Cost
xxxxxAdd: Factory Overhead
xxxxxProduction cost
xxxxx
(Production Cost = Prime cost (Direct Cost)+ Factory overhead expenses (Indirect cost)
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Prime CostDirect Material
xxxxxAdd: Direct Labour
xxxxx Direct Expenses
xxxxxPrime Cost
xxxxx
(Prime Cost = Direct Material+ Direct Labour + Direct Expenses)
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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 xxxxxAdd: Purchase of raw materials xxxxx Carriage inwards / freight charges xxxxxAvailable for use xxxxxLess: Closing Inventory of Raw Materials (xxxx)Direct Material used xxxxx
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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
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Prime CostDirect Material xxxxxAdd: Direct Labour xxxxx Direct Expenses xxxxxPrime Cost xxxxx
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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 CleanerWages of Crane operatorWages of SupervisorsRent and Rates of FactoryDepreciation of Plant and MachineryFactory PowerFactory Lighting
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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.
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Production CostDirect MaterialsDirect LabourDirect Expenses
Plus Factory Overhead
Prime Cost Production
Cost
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Work in Process
Direct MaterialsDirect LabourDirect Expenses
Plus Factory Overhead
Plus Work in Process (opening) Less Work in Process (Closing)
Prime Cost Production
Cost Total Cost of Goods Manufactured
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 addedAnd The closing inventory of the Work In Process should be subtracted
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(a) Manufacturing Account
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(b) Income StatementThis includes: Production cost brought down from Manufacturing Account Opening and Closing Stock of Finished Goods Sales
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(c) Income StatementThis includes: Gross Profit brought down from Trading Account All administrative expenses All selling and distribution Expenses All Financial Charges
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(d) Balance SheetThis includes: All Assets (Current & non-current) All Liabilities (Current & non-current) All Capital & Drawing and Net Profit or Loss
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(d) Balance Sheet