Manufacturing Accounts

The businesses which produce and sell the items prepare the following accounts at the end of its accounting year:a. The Manufacturing account (to calculate the total cost of production) b. The Trading and profit & loss account (to find out the net profit or loss) c. The balance sheet.(to show the financial position of the business) The total cost of production = Prime cost + Factory overhead The Prime cost = Direct material + Direct labour + Direct expenses Direct material cost = Opening stock of raw materials + purchase of raw materials + Carriage inwards returns outwards closing stock of raw materials. Factory overhead expenses = All expenses related to the factory (indirect expenses) In a manufacturing concern, usually there are three kinds of stocks: Stock of Raw materials (the materials which are mainly used for production of the item) Stock of Work in progress (the materials on which some work process have been completed) Stock of Finished goods (The materials on which all the production processes are completed and ready for sale to the customers) In the examination questions, the stock figures will be given separately.

The format of a manufacturing account

Format of trading account of a manufacturing concern

The profit & loss account and the balance sheet preparations will be the same as that of a sole traders. So the students have to follow the previous method for the preparation of these.

Fixed expenses and Variable expenses Some expenses will remain constant whether the level of activity increases or falls. These expenses are called fixed expenses E.g. rent of building The expenses which change with changes in activity are called variable expenses E.g: cost of materials. Key points:

Carriage on raw materials means carriage inwards and it is a part of prime cost. Carriage outwards is shown in the profit & loss account as an expense. Royalties paid is to be treated as direct expense. Depreciation on Plant and Machinery or any other factory asset is to be treated as factory overhead expense. Stocks of raw materials and work-in-progress are taken in the manufacturing account and stock of finished goods is taken in the trading account. Stocks at the end of the year (raw materials, work-in-progress and finished goods) are shown in the balance sheet as current assets. Owners raw materials drawings are shown in the manufacturing account while calculating the prime cost. Finished goods drawings are shown in the trading account while calculating the cost of goods sold. The purchase of finished goods is added with cost of production in the trading account. The depreciation of any asset used in the office should be shown as an expense in the profit & loss account. Cost of ready made items bought for the production of items manufactured should be treated as direct expense. Unit cost of production = Total cost of production No of units produced MCQ.Q 1. The purpose of preparing the manufacturing account is to calculate:A. Gross profit B. Manufacturing profit C.Net profit D. Cost of productionQ 2. What does production cost include in a manufacturing account? A Factory power C Carriage inwards on raw materials Q 3. Prime cost includes B. Purchase of raw materials D. All of these

A. Factory direct wages C. Finished goods Q 4.

B. Factory indirect wages D. Work in progress

The costs of a manufacturing firm are as follows: $

Raw materials purchasedDirect LabourCost of Raw material consumedFactory overheads

5000 3000 7000 2000

What was the prime cost? A. $10000 Q 5. B. $15000 C. $12000 D. $17000

Prime cost In a Manufacturing account is equal to B. All factory costs D. Direct materials plus direct expenses

A. All factory indirect costs B. Direct factory costs only Q 6.

Carriage outward in manufacturing concern is included in which heading? B. Factory overhead expenses D. Selling and distribution expenses

A. Direct expenses C. Administrative expenses Q 7.

Which of the following is not included in the Manufacturing account? B. Depreciation on factory machinery The

A. Foremans wages

C. Indirect wages D. Depreciation on office equipmentQ 8. following table shows the cost incurred for the production of an item.Direct materials $ 1200 Direct wages Manufacturing expenses $ 700 $ 100

Factory overhead expenses $ 300 What is the amount of prime cost?

A. $ 2300 Q 9.

B. $ 2 000

C. $ 1 700

D. $ 3 000

How is the production cost calculated in a manufacturing account?

A. Prime cost + administrative expenses B. Prime cost + administrative expenses C. Prime cost + Factory overhead expenses D. Raw materials + direct labour. Q 10. Which on of the following is not factory overhead expense? A. Wages of cleaners C. Factory lighting B. Carriage on raw materials D. Factory power

Q 11. Which are the stock figures shown in the manufacturing account? A. Finished goods and raw materials B. Finished goods only

C. Raw materials and working progress D. Finished goods, working progress and raw materials. Q 12. In the balance sheet of a manufacturing concern, which stock is shown? B. Raw materials D. All three.

A. Finished stock C. Work in progress

Q 13. A manufacturing firms costs were as follows: Raw materials Direct labour Factory overhead Depreciation of plant Administrative expense Selling & distribution expense 55 000 86 400 122 000 6 400 8 800 12 000

There was closing work in progress of $ 12 400 What was the factory cost of production? A. $ 257 400 Q 14 B. $ 263 400 C. 269 800 D. 278 200

The material drawings are shown in the: B. profit & loss account D. balance sheet only

A. trading account C. manufacturing account Q 15

Royalties paid by a manufacturer is: B. a part of prime cost. D. an indirect expense

A. shown as factory overhead C. a selling expense

Assignment questions Q1) Zena owns a small manufacturing business. The following balances were taken from her books on 30 June 2001: $ Stocks 1 July Raw materials Finished goods Stocks 30 June 2001: Raw materials Finished goods Purchases of raw materials Carriage on sales Carriage on raw materials Selling expenses 25 700 21 500 265 500 3 300 3 100 3 500 2000 23 300 28 500

Bad debts Factory overheads Depreciation of factory equipment Factory direct expenses Factory wages

500 30 300 14 000 4 000 100 000

Select the appropriate balances and prepare the Manufacturing account for the year Ended 30 June 2001. Show clearly within the account: cost of raw materials consumed, prime cost, cost of production

Q2) Justine is a manufacturer of beauty products. The following balances were extracted from her books on 31 December 2001 after the Manufacturing Account had been prepared. $ $ 3 530 1 450 11 200 103 780 137 560 1 230 3 410 8 970 11 860 60 51 410

Stocks Raw Materials (31 December 2001) Work in Progress (31 December 2001) Finished Products (1 January 2001) Cost of products manufactured Sales of finished goods Carriage on sales Advertising Sales staffs commission Office expenses Bank charges Plant and machinery

Provision for depreciation on Plant and Machinery Trade debtors Trade creditors Provision for doubtful debts (1 January 2001) Bad debts Cash in hand Bank overdraft Capital Drawings 3 250 214 300 The following additional information is available. 1. Stock of finished products at 31 December 2001 was valued at $10 640. 460 90 1 740 60 450 13 600 5 210

9 030

310

214 300

2. During the year, Justine took finished products valued at $600 from the current years production for personal use. No entries had been made in the books. 3. Sales staffs commission outstanding amounted to $390. 4. The provision for doubtful debts is to be adjusted to 5% of debtors. 5. $50 for bank charges had not been recorded in the books.

(a) Prepare Justines Trading and Profit and Loss Accounts for the year ended 31 December 2001. (b) Prepare the Balance Sheet as at 31 December 2001.

Q:3 Allocate the following costs to Manufacturing account and Income statement

Eg:Factory rent a) Production supervisors salary b) Insurance of factory building c) Depreciation of office photocopier d) Revenue commission e) Raw material purchased f) Advertising g) Manufacturing Electricity h) Carriage on Revenue i) Carriage on raw materials j) Bad debts

Manufacturing account

Q:4 Farhad owns a small workshop and he makes iron gates. The following information was taken from the books on 31 December 2009. 1 January 2010 31 December 2010

$ 22,400 14,400 20,700 20,000

Inventories Raw materials Finished goods

Purchases of raw materials Carriage on Revenue Carriage on raw materials Workshop wages Sales staff wages Raw materials returned to suppliers Workshop light and heat

172,100 4,200 3,200 75,600 42,100 700 9,200

Workshop general expenses Depreciation of workshop equipment Revenues from finished goods

16,900 9,600 366,000

REQUIRED: a) Select the appropriate balances and prepare the Manufacturing Account for the year ended 31 December 2010. b) Q:5 The following information for the year ended 31 December 2008 is extracted from the books of Sammad, the owner of a small fruit juice-bottling factory: 1 January 2010 31 December 201 Prepare the Income statement for the year ended 31 December 2010.

$ Inventories Ingredients (Bulk Orange Juice) Empty Bottles and Labels Bottled Fruit Juice Purchases of: Ingredients (Bulk Orange Juice) Bottles and Labels Revenue of Bottled Fruit Juice Factory Wages Supervisors Salary

950 260 3,900

1,070 230 4,300

13,400 1,270 71,400 23,430 5,200

Factory indirect expenses Depreciation of Plant and Machinery You are required to prepare

2,690 1,700

1. The Manufacturing Account showing clearly cost of raw materials consumed, prime cost and cost of production. 2. The income statement for the year ended 31 December 2010

Q:6 The following information for the year ended 30 September 2003 was extracted from the books of Preserves Ltd, manufacturers of jam and fruit juices. 1 October 2002 $ Inventories: raw materials jars, lids and labels finished goods 30 September 2003 $ 6 800 10 400 21 000 6 400 10 000 21 600

Purchases: raw materials jars, lids and labels

70 600 17 000

Revenues Factory wages Factory light and power Factory machines repairs Carriage on raw materials Depreciation of plant and machinery

365 000 36 800 29 200 11 400 11 000 12 600

REQUIRED: (a) Prepare, in good style, the Manufacturing Account for the year ended 30 September 2003. (b) Prepare the Income statement for the year ended 30 September 2003.

Manufacturing Accounts
The businesses which produce and sell the items prepare the following accounts at the end of its accounting year:a. The Manufacturing account (to calculate the total cost of production) b. The Trading and profit & loss account (to find out the net profit or loss) c. The balance sheet.(to show the financial position of the business) The total cost of production = Prime cost + Factory overhead The Prime cost = Direct material + Direct labour + Direct expenses Direct material cost = Opening stock of raw materials + purchase of raw materials + Carriage inwards returns outwards closing stock of raw materials. Factory overhead expenses = All expenses related to the factory (indirect expenses) In a manufacturing concern, usually there are three kinds of stocks: Stock of Raw materials (the materials which are mainly used for production of the item) Stock of Work in progress (the materials on which some work process have been completed) Stock of Finished goods (The materials on which all the production processes are completed and ready for sale to the customers)

In the examination questions, the stock figures will be given separately.

The format of a manufacturing account

Format of trading account of a manufacturing concern

The profit & loss account and the balance sheet preparations will be the same as that of a sole traders. So the students have to follow the previous method for the preparation of these.

Fixed expenses and Variable expenses Some expenses will remain constant whether the level of activity increases or falls. These expenses are called fixed expenses E.g. rent of building The expenses which change with changes in activity are called variable expenses E.g: cost of materials. Key points:

Carriage on raw materials means carriage inwards and it is a part of prime cost. Carriage outwards is shown in the profit & loss account as an expense. Royalties paid is to be treated as direct expense. Depreciation on Plant and Machinery or any other factory asset is to be treated as factory overhead expense. Stocks of raw materials and work-in-progress are taken in the manufacturing account and stock of finished goods is taken in the trading account. Stocks at the end of the year (raw materials, work-in-progress and finished goods) are shown in the balance sheet as current assets. Owners raw materials drawings are shown in the manufacturing account while calculating the prime cost. Finished goods drawings are shown in the trading account while calculating the cost of goods sold. The purchase of finished goods is added with cost of production in the trading account. The depreciation of any asset used in the office should be shown as an expense in the profit & loss account.

Cost of ready made items bought for the production of items manufactured should be treated as direct expense. Unit cost of production = Total cost of production No of units produced MCQ.Q 1. The purpose of preparing the manufacturing account is to calculate:A. Gross profit B. Manufacturing profit C.Net profit D. Cost of productionQ 2. What does production cost include in a manufacturing account? A Factory power C Carriage inwards on raw materials Q 3. Prime cost includes B. Factory indirect wages D. Work in progress B. Purchase of raw materials D. All of these

A. Factory direct wages C. Finished goods Q 4.

The costs of a manufacturing firm are as follows: $

Raw materials purchasedDirect LabourCost of Raw material consumedFactory overheads

5000 3000 7000 2000

What was the prime cost? A. $10000 Q 5. B. $15000 C. $12000 D. $17000

Prime cost In a Manufacturing account is equal to B. All factory costs D. Direct materials plus direct expenses

A. All factory indirect costs B. Direct factory costs only Q 6.

Carriage outward in manufacturing concern is included in which heading? B. Factory overhead expenses D. Selling and distribution expenses

A. Direct expenses C. Administrative expenses Q 7.

Which of the following is not included in the Manufacturing account?

A. Foremans wages

B. Depreciation on factory machinery The

C. Indirect wages D. Depreciation on office equipmentQ 8. following table shows the cost incurred for the production of an item.Direct materials $ 1200 Direct wages Manufacturing expenses $ 700 $ 100

Factory overhead expenses $ 300 What is the amount of prime cost? A. $ 2300 Q 9. B. $ 2 000 C. $ 1 700 D. $ 3 000

How is the production cost calculated in a manufacturing account?

A. Prime cost + administrative expenses B. Prime cost + administrative expenses C. Prime cost + Factory overhead expenses D. Raw materials + direct labour. Q 10. Which on of the following is not factory overhead expense? A. Wages of cleaners C. Factory lighting B. Carriage on raw materials D. Factory power

Q 11. Which are the stock figures shown in the manufacturing account? A. Finished goods and raw materials B. Finished goods only

C. Raw materials and working progress D. Finished goods, working progress and raw materials. Q 12. In the balance sheet of a manufacturing concern, which stock is shown? B. Raw materials D. All three.

A. Finished stock C. Work in progress

Q 13. A manufacturing firms costs were as follows: Raw materials Direct labour Factory overhead Depreciation of plant Administrative expense Selling & distribution expense 55 000 86 400 122 000 6 400 8 800 12 000

There was closing work in progress of $ 12 400 What was the factory cost of production? A. $ 257 400 Q 14 B. $ 263 400 C. 269 800 D. 278 200

The material drawings are shown in the: B. profit & loss account D. balance sheet only

A. trading account C. manufacturing account Q 15

Royalties paid by a manufacturer is: B. a part of prime cost. D. an indirect expense

A. shown as factory overhead C. a selling expense

Assignment questions Q1) Zena owns a small manufacturing business. The following balances were taken from her books on 30 June 2001: $ Stocks 1 July Raw materials Finished goods 2000 23 300 28 500

Stocks 30 June 2001: Raw materials Finished goods Purchases of raw materials Carriage on sales Carriage on raw materials Selling expenses Bad debts Factory overheads Depreciation of factory equipment Factory direct expenses Factory wages 25 700 21 500 265 500 3 300 3 100 3 500 500 30 300 14 000 4 000 100 000

Select the appropriate balances and prepare the Manufacturing account for the year Ended 30 June 2001. Show clearly within the account: cost of raw materials consumed, prime cost, cost of production

Q2) Justine is a manufacturer of beauty products. The following balances were extracted from her books on 31 December 2001 after the Manufacturing Account had been prepared. $ $ 3 530 1 450 11 200 103 780

Stocks Raw Materials (31 December 2001) Work in Progress (31 December 2001) Finished Products (1 January 2001) Cost of products manufactured

Sales of finished goods Carriage on sales Advertising Sales staffs commission Office expenses Bank charges Plant and machinery Provision for depreciation on Plant and Machinery Trade debtors Trade creditors Provision for doubtful debts (1 January 2001) Bad debts Cash in hand Bank overdraft Capital Drawings 3 250 214 300 The following additional information is available. 460 90 13 600 1 230 3 410 8 970 11 860 60 51 410

137 560

9 030

5 210 310

1 740 60 450

214 300

1. Stock of finished products at 31 December 2001 was valued at $10 640. 2. During the year, Justine took finished products valued at $600 from the current years production for personal use. No entries had been made in the books. 3. Sales staffs commission outstanding amounted to $390. 4. The provision for doubtful debts is to be adjusted to 5% of debtors.

5. $50 for bank charges had not been recorded in the books.

(a) Prepare Justines Trading and Profit and Loss Accounts for the year ended 31 December 2001. (b) Prepare the Balance Sheet as at 31 December 2001.

Q:3 Allocate the following costs to Manufacturing account and Income statement

Eg:Factory rent a) Production supervisors salary b) Insurance of factory building c) Depreciation of office photocopier d) Revenue commission e) Raw material purchased f) Advertising g) Manufacturing Electricity h) Carriage on Revenue i) Carriage on raw materials j) Bad debts

Manufacturing account

Q:4 Farhad owns a small workshop and he makes iron gates. The following information was taken from the books on 31 December 2009. 1 January 2010 31 December 2010

$ 22,400 14,400 20,700 20,000

Inventories Raw materials Finished goods

Purchases of raw materials Carriage on Revenue Carriage on raw materials Workshop wages Sales staff wages Raw materials returned to suppliers Workshop light and heat Workshop general expenses Depreciation of workshop equipment Revenues from finished goods

172,100 4,200 3,200 75,600 42,100 700 9,200 16,900 9,600 366,000

REQUIRED: a) Select the appropriate balances and prepare the Manufacturing Account for the year ended 31 December 2010. b) Q:5 The following information for the year ended 31 December 2008 is extracted from the books of Sammad, the owner of a small fruit juice-bottling factory: 1 January 2010 31 December 201 Prepare the Income statement for the year ended 31 December 2010.

$ Inventories Ingredients (Bulk Orange Juice) Empty Bottles and Labels

950 260

1,070 230

Bottled Fruit Juice Purchases of: Ingredients (Bulk Orange Juice) Bottles and Labels Revenue of Bottled Fruit Juice Factory Wages Supervisors Salary Factory indirect expenses

3,900

4,300

13,400 1,270 71,400 23,430 5,200 2,690 1,700

Depreciation of Plant and Machinery You are required to prepare

1. The Manufacturing Account showing clearly cost of raw materials consumed, prime cost and cost of production. 2. The income statement for the year ended 31 December 2010

Q:6 The following information for the year ended 30 September 2003 was extracted from the books of Preserves Ltd, manufacturers of jam and fruit juices. 1 October 2002 $ Inventories: raw materials jars, lids and labels finished goods 30 September 2003 $ 6 800 10 400 21 000 6 400 10 000 21 600

Purchases: raw materials jars, lids and labels

70 600 17 000

Revenues Factory wages Factory light and power Factory machines repairs Carriage on raw materials Depreciation of plant and machinery

365 000 36 800 29 200 11 400 11 000 12 600

REQUIRED: (a) Prepare, in good style, the Manufacturing Account for the year ended 30 September 2003. (b) Prepare the Income statement for the year ended 30 September 2003.