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 31 st 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 31 st 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
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