COURSE CODE ACC211

MANUFACTURING ACCOUNT Date 6/11/2023

MEANING OF MANUFACTURING ACCOUNT:

THIS is an account prepared by producing/manufacturing companies to ascertain their cost of

production in the course of producing an item or items which includes all direct cost and factory
overheads.

Definition of certain terminologies for clarity.

Prime cost:

This is the total cost of direct cost. Example is raw materials and direct expenses.

Finished goods:

These are goods which pass through the various stages of production and are ready to be sold
to final consumers. Examples are your exercise books, computers etc.

Raw materials:

This are materials yet to be produced which serves are direct cost.examples are flours,leathers
etc.

Cost of production

The entire cost of producing a product or item in a factory before determination of profit
margins and markup this is achieved by adding the entire direct and indirect cost relating to
factory /production process.

WORK IN PROGRESS

These are materials still in the pipeline. What I mean here, are products still in the production
stage and it may not be fully produced till the end or start of the accounting period which may
be called closing or opening work in progress, all depending at each stages.

Factory overhead:

These are other expenses which are not directly link to any product but are expended for the
factory running. This shall be properly understood in the course of this topic. Examples are
factory, rents and rate, factory cleaning, factory plants and machinery etc.
Format of manufacturing account.

N N N

Opening stock/inventory X

Purchase of raw material X

Carriage inward R.m Xx

Returns outward R.m Xx xx

Cost of raw material available Xx

Closing stock/inventory of R.m (xx) xx

Direct labours/wages xx

Direct expenses xx

Prime cost xx

Factory overhead:

Depreciation of factory plant xx

Factory power xx XX

GROSS Cost of production XX

Opening w.i.p XX

Closing w.i.p (XX)

Net Cost of production Xx

Manufacturing profit XX

Market value XX

SALES x

SALES returns (x)

Less Cost of goods sold:

Opening inventory of finished goods x

Cost of Goods produced/manufacturing cost x

Purchases of finished goods if any x

Carriage inwards of finished goods x

Purchase returns of finished goods (x)

Goods available for sales x

Closing stock/inventory of finished goods (x) (x)

Gross profit (on trading) xx

Add other incomes

Discount received x

Interest received x

Commission received x x

Total income xx

Less administrative expenses

Administration salaries x

Office electricity x

Office rents and rates x

Printing and stationery x

Admin insurance x

Depreciation of office equipment x

Other admin. Expenses x

Less selling and distribution expenses:

Salesmen salaries and commission x

Bad debt x

Increase/(decrease) in provision for bad debt x

Advertising discount allowed x

Carriage outwards x

Depreciation of delivery vans xx xx

Net profit for the year xx

Ability to understand the above form format is 50% way of understanding this topic.

Let’s attain the following illustration

Example 1
The following trial balance was extracted from the books of john manufacturing ltd as at 30 th
 N N
Capital 1,240,000
Inventory as at 1/7/2018:
Raw material 271,000
Finished materials 253,000
Purchase of raw materials 4,753,000
Carriage on raw materials 11,250
Returns on purchases of raw materials 22,250
Factory wages 1,064,600
Factory power 91,000
Factory lights and heat 39,900
Office lights and heat 28,600
Prnting and stationery 25,280
Postages and telephone 20,400
Office salaries 198,000
Factory salaries 230,000
factory insurance 24,500
other insurance 90,000
display expenses 133,000
advertising 17,000
discount allowed 14,000
discount received 15,000
sales of manufacturing production 7,163,000
provison for unrealized profit (1/7/2018 23,000
land and building 500,000
factory equipment cost (500,000) 450,000
office equipment cost (100,000) 80,000
furniture and fitting cost(50,000) 40,000
drawings 68,520
debtors and creditors 23,000 26,400
cash in hand 55,000
sales returns 8,000
8,489,650 8,489,650
ne, 2019.
Additional information

1. Finished goods manufactured during all the accounting period are transferred from factory
at a manufacturing price of cost of production 10%

2. inventories at 30th June, 2009: raw materials 880 and furnished goods 341,000

3. Provision for depreciation rate is 10% per annum on all cost of non-current assets
purchased by the company excluding land and building.

Required:

Prepare the manufacturing account and income statement for the year ended 30 th June, 2019
and the statement of financial position as at that year.

Suggested solution

Workings to aid posting

Depreciation on:

1. Factory equipment and machinery = 10% x 500,000= 50,000

2. Office equipment =10% x 100,000=10,000

3.furniture and fittings =10% x 50,000= 5000
Manufacturing account and the comprehensive statement for the year ended 3oth,june,2019
Direct materials N N
Opening stock of r.m materials 271,000
Purchase of raw materials 4,753,000
Carriage inward of r.m 11,250
Returns on purchases (22,250) 4,742,000
Cost of raw materials available 5,013,000
Closing stock (880,000)
Cost of raw material;ls used 4,133,000
Factory wages 1,064,600
PRIME cOST 5,197,600
Factory overhead:
Factory power 91,000
Fctory light and heat 39,900
Factory salaries 230,000
Factory insurance 24,500
Depreciation of factory machine 50,000 435,400
Cost of production 5,633,000
Manufacturing profit (10% x 5633000) 563,300
Market value 6,196,300
Finished goods ;
Sales 7,163,000
Sales returns (8,000)
Net sales 7,155,000
Cost of sales :
Opening inventory 253,000
Market value 6,196,300
Cost of sales available for sales 6,449,300
Closing inventory (341,000) 6,108,300
Gross profit 1,046,700
other income:
manufacturing profit 563,300
discount received 15,000
total income 1,625,000
selling and distribution expenses:
display expense 133,600
advertising 17,000
provison for unrealized profit 8,000 (158,600)
adminstration and general expense:
office light and heat 28,600
printing and stationery 25,280
postages and telephone 20,400
office salaries 198,000
other insurance 90,000
depreciattion of office equipement 10,000
depreciation of furniture and fitting 5,000 (377,280)
finance charge:
discount allowed 14,000 (14,000)
net profit 1,075,120
Statement of Financial position as at 30th june 2019

statement of finacial position as at 30th june 2019

non currents assets cost depr npv
land and buiding 500,000 - 500,000
factory equipment and
machinery 500,000 100,000 400,000
office equipment 100,000 30,000 70,000
furniture and fittings 50,000 15,000 35,000
1,150,000 145,000 1,005,000
current assets
inventory of raw material 880,000
inventory of finished goods 341,000
less unrealized stock (31,000) 310,000
reciavables 23,000
cash 55,000
total assets 2,273,000

equity and liabilities

capital 1,240,000
net profit 1,075,120
2,315,120
drawings 68,520
2,246,600
current liabilities
trade payables 26,400
2,273,000

GOOD LUCK.