Manufacturing Accounts Session 12 Session Outline Manufacturing - - PowerPoint PPT Presentation

Manufacturing Accounts

Session 12

Session Outline

• Manufacturing Account?
• Important Concepts
• Preparation of Manufacturing Accounts

Manufacturing Account

• A manufacturing account will record all the manufacturing costs of the

goods produced by a business in an accounting period.

• When an organisation is involved in manufacturing, they need to prepare a

manufacturing account before preparing an income statement.

• Non-manufacturing organisations are involved in the purchase and sale of

goods; thus a manufacturing account would not be needed.

• After the cost of the goods are calculated using the Manufacturing Account,

it needs to be transferred to the income statement.

• Thus, Manufacturing entities prepare a Manufacturing Account in addition

to the income statement and the balance sheet.

Important Concepts

• Prime Cost = Direct Material+ Direct

Labour+ Direct Expenses

• Factory Overhead Cost= Indirect

Manufacturing Costs

• Production Cost = Prime Cost+ Factory

Overhead Cost

• Total Cost= Production Cost+ Office

Overhead Cost

Manufacturing Account Format

Direct Material XXX Direct Labour XXX Direct Expenses XXX PRIME COST XXX FACTORY OVERHEAD COST XXX PRODUCTION COST XXX

Example

• Prepare the manufacturing account for Perera’s bakery, based on the following

information, and calculate the cost per bread if the bakery produced 1,000 units. – Baker’s wages = Rs. 500,000 – Cost of wheat= Rs. 1,000,000 – Bakery rent= Rs. 450,000 – Advertising expenses= Rs. 850,000 – Office telephone bills= Rs. 250,000 – Bakery electricity bill= Rs. 1,800,000 – Salaries of office workers= Rs. 850,000

• Assumption: The bakery does not maintain raw material or working progress inventories

Question

• Following information from Manix Funiture’s trial balance are provided as at 31st December 2019.

– Raw material cost per unit (12 units at $4.5 per unit) = $54 – Direct labour per unit (30 hours at $10 per unit) = $300 – Royalty expenses per unit = $110 – Electricity Expenses= $ 145,000 (Factory) / $ 1,800,000 (Office) – Machine Depreciation= $ 4,000,000 (60% Factory & 40% Office) – Telephone Expenses= $ 1,850,000 (Factory) / $ 910,000 (Office) – Other overhead expenses = $1,500,000 (Factory) / $ 590,000 (Office)

• Additional Details:

– 4,000 chairs were manufactured during the year ended 31st December 2019 – No opening and closing inventory of raw materials and work in progress

• Required:

– Calculate the prime cost – Calculate the total production cost – Calculate the total cost

Thank You

Email – anjalee@bms.edu.lk