Manufacturing Accounts
PURPOSE:
The manufacturing account is prepared to ascertain the cost of goods and services produced in the
financial year.
The elements of cost:
Direct material: The raw material that is converted into finished goods. Example flour, wood, steel.
Direct labor: The cost of the wages of the people who are employed in the factory making the goods.
This is also known as direct wages. Example bakers, carpenters, machine operators.
Direct expenses: The expenses that can be directly charged on the product. Example Royalty and cost of
hiring any special equipment. Royalty is a fee that is paid to a person who originally invented the product.
Factory overhead: It includes all the costs involved in operating the factory which cannot be directly
charged on the product. This is also known as indirect factory expenses.
ABC LTD
Manufacturing account for the year ended 31st December 2010
$ $
Opening inventory of raw materials 20000
Purchase of raw material 30000
Return outward (5000)
Carriage inward 2000
47000
Less: closing inventory of raw material (5000)
Cost of Raw material consumed 42000
Add Direct wages/ factory wages/ operator 10000
wage/manufacturing wage.
52000
Add: direct expenses:
Royalty 5000
Cost of hiring special equipment 10000
15000
Prime cost 67000
Add: factory overhead:
Indirect wages 4000
Factory rent, heating, lighting 5000
Factory insurance 10000
Factory supervisor’s salary 5000
Factory cleaner’s wages 1000
Depreciation on factory building, machinery and loose 5000
tools 30000
97000
Add: opening work in progress 10000
Less: closing work in progress (7000)
Cost of goods produced 100000
State the reasons why a manufacturing company purchase some finished goods.
● When production does not meet the demand
● When it is cheaper to buy the goods rather than make them
● When those particular items cannot be made by the business.
Prepared by Md Mustafizur Rahman, Cambridge Examiner for IGCSE & O level Accounting,
Teacher DPS STS School,Uttara, Dhaka, Contact 01816456475, 01710025359
Manufacturing Accounts
Income statement/ trading and profit and loss account
Details $ $
Turnover/sales /Revenue 500000
Less sales return/ return inwards (20000)
480000
Less cost of sales:
Opening stock/ inventory of Finished goods 10000
Purchase of finished goods 300000
Carriage on Finished goods 10000
Cost of goods produced Xxxxxx
less Purchase return/return outwards (10000)
less goods for own use (10000)
less closing stock/inventory (20000)
(280000)
Gross profit
200000
OTHER INCOMES:
1000
Add decrease in provision for doubtful debts
2000
Add bad debts recovered
3000
Add discount received
4000
Add rent received
210000
Less expenses:
Selling and distribution Xxxxx
Office and administration xxxxx
Carriage outwards 6000
Heating & lighting 7000
Insurance (25000-5000) 20000
Salary & wages (10000+5000) 15000
Bad debts 500
Increase in Provision for doubtful debts 500
Provision for depreciation on:
Motor van 5000
Building 3000
Discount allowed 2000
1500 (60500)
Others expenses
149500
Profit for the year
Three types of overheads are: Factory overheads, Office and administration, and Selling and
Distribution overheads
Three types of inventory: Inventory of Raw materials, Work in progress, and Finished goods
Prepared by Md Mustafizur Rahman, Cambridge Examiner for IGCSE & O level Accounting,
Teacher DPS STS School,Uttara, Dhaka, Contact 01816456475, 01710025359
