C hapter 29: Manufacturing accounts

Contents of chapter
This chapter deals with the divisions of costs and how these can be shown in manufacturing, trading and profit
and loss accounts.

Notes for teachers

The format for the manufacturing, trading and profit and loss account is as follows:
1
Manufacturing, Trading and Profit and Loss Account for the year ended …

$ $
Direct materials XXX
Direct labour XXX
Direct expenses XXX
Prime cost XXX
Factory overheads XXX
Production cost of goods completed c/d XXX

Sales XXX
Less Cost of goods sold:
Opening stock of finished goods XXX
Add Production cost of goods completed b/d XXX
XXX
Less Closing stock of finished goods XXX
Gross profit XXX
Less Expenses:
Administrative expenses XXX
Selling and distribution expenses XXX
Finance charges XXX XXX
Net profit XXX

Work-in-progress simply means goods which are being manufactured but have not been completed to a
2
saleable condition by the end of the financial period.

Work-in-progress is the stock of unfinished goods. Only finished goods are shown in a trading account as
3
only finished goods can be sold.

The adjustments for work-in-progress must therefore be in the manufacturing account. As with stock, the
opening work-in-progress figure is added and the closing work-in-progress is deducted.

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 The manufacturing account part therefore becomes:

$
Direct materials XXX
Direct labour XXX
Direct expenses XXX
Prime cost XXX
Factory overheads XXX
XXX
Add Opening work-in-progress XXX
XXX
Less Closing work-in-progress XXX
Production cost of goods completed c/f XXX

178
Answers to MCQs and exercises
29.1 A 29.2 B 29.3 C 29.4 B

29.5
E Chung
Manufacturing and Trading Account for the year ended 31 March 20X8
$ $
Stock of raw materials as at 1 April 20X7 2,400
Add Purchases 21,340
Carriage inwards 321 21,661
24,061
Less Stock of raw materials as at 31 March 20X8 2,620
Cost of raw materials consumed 21,441
Manufacturig wages 13,280
Prime cost 34,721
Factory overheads:
Factory power 6,220
Other manufacturing expenses 1,430
Rent and rates 2,300 9,950
44,671
Add Work-in-progress as at 1 April 20X7 955
45,626
Less Work-in-progress as at 31 March 20X8 870
Production cost of goods completed c/d 44,756

Sales 69,830
Less Cost of goods sold:
Stock of finished goods as at 1 April 20X7 6,724
Add Production cost of goods completed b/d 44,756
51,480
Less Stock of finished goods as at 31 March 20X8 7,230 44,250
Gross profit 25,580

179
 29.6X
W Chow
Manufacturing and Trading Account for the year ended 31 August 20X8
$ $
Opening stock of raw materials 5,620
Add Purchases 22,200
Carriage inwards 610
28,430
Less Closing stock of raw materials 8,410
Cost of raw materials consumed 20,020
Manufacturing wages 14,522
Prime cost 34,542
Factory overheads:
Power 2,377
Rent and rates 5,720
Other expenses 3,879 11,976
46,518
Add Opening stock of work-in-progress 811
47,329
Less Closing stock of work-in-progress 1,033
Production cost of goods completed c/d 46,296
Sales 63,890
Less Cost of goods sold:
Opening stock of finished goods 11,372
Add Production cost of goods completed b/d 46,296
57,668
Less Closing stock of finished goods 9,128 48,540
Gross profit 15,350

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29.7
T Sung
Manufacturing, Trading and Profit and Loss Account for the year ended 31 December 20X8
$ $
Stock of raw materials as at 1 January 20X8 18,450
Add Purchases 64,300
Carriage inwards 1,605 65,905
84,355
Less Stock of raw materials as at 31 December 20X8 20,210
Cost of raw materials consumed 64,145
Direct labour 65,810
Prime cost 129,955
Factory overheads:
2
Rent ($2,700 × 3 ) 1,800
Provision for depreciation: Factory machinery 8,300
Fuel and power 5,920 16,020
145,975
Add Work-in-progress as at 1 January 20X8 23,600
169,575
Less Work-in-progress as at 31 December 20X8 17,390
Production cost of goods completed c/d 152,185
Sales 200,600
Less Cost of goods sold:
Stock of finished goods as at 1 January 20X8 17,470
Add Production cost of goods completed b/d 152,185
169,655
Less Stock of finished goods as at 31 December 20X8 21,485 148,170
Gross profit 52,430
Less Expenses:
Office salaries 16,920
1
Rent ($2,700 × 3 ) 900
Electricity and water 5,760
Provision for depreciation: Office equipment 1,950 25,530
Net profit 26,900

181
 29.8X
P Luen
Manufacturing, Trading and Profit and Loss Account for the year ended 30 September 20X5
$ $ $
Stock of raw materials as at 1 October 20X4 8,460
Add Purchases 38,720
Carriage inwards 2,720 41,440
49,900
Less Stock of raw materials as at 30 September 20X5 10,970
Cost of raw materials consumed 38,930
Manufacturing wages 20,970
Prime cost 59,900
Factory overheads:
Factory expenses 12,650
Depreciation: Plant and machinery 7,560
Power 6,120 26,330
86,230
Add Work-in-progress as at 1 October 20X4 3,070
89,300
Less Work-in-progress as at 30 September 20X5 2,460
Production cost of goods completed c/d 86,840

Sales 134,610
Less Cost of goods sold:
Stock of finished goods as at 1 October 20X4 12,380
Add Production cost of goods completed b/d 86,840
99,220
Less Stock of finished goods as at 30 September 20X5 14,570 84,650
Gross profit 49,960
Less Expenses:
Advertising 5,080
Office and administration expenses 5,910
Salesmen’s salaries and expenses 6,420
Delivery van expenses 5,890
Depreciation:
Delivery van 3,040
Office equipment 807 3,847 27,147
Net profit 22,813

182
29.9X
(a) Christ Church Company
Manufacturing, Trading and Profit and Loss Account for the year ended 31 March 20X5
$ $
Stock of raw materials as at 1 April 20X4 27,200
Add Purchases 736,440
763,640
Less Stock of raw materials as at 31 March 20X5 30,200
Cost of raw materials consumed 733,440
Direct labour 108,632
Prime cost 842,072
Factory overheads:
Wages for factory supervisors 52,158
2
Rent and rates [($293,620 + $1,880) × 5 ] 118,200
Provision for depreciation: Factory plant ($882,800 × 20%) 176,560 346,918
1,188,990
Add Work-in-progress as at 1 April 20X4 165,300
1,354,290
Less Work-in-progress as at 31 March 20X5 97,200
Production cost of goods completed c/d 1,257,090

Sales 1,986,400
Less Cost of goods sold:
Opening stock of finished goods 70,560
Add Production cost of goods completed b/d 1,257,090
1,327,650
Less Closing stock of finished goods 85,200 1,242,450
Gross profit 743,950
Less Expenses:
Administrative salaries ($192,257 + $12,500) 204,757
Rent and rates [($293,620 + $1,880) × 3 ] 177,300
5
Selling and distribution expenses 88,913
Finance charges 8,250
Provision for depreciation: Furniture and fixtures [($134,240 – $74,280) × 25%] 14,990 494,210
Net profit 249,740

183
 (b) Christ Church Company
Balance Sheet as at 31 March 20X5
Accumulated Net book
Cost depreciation value
Fixed Assets $ $ $
Factory plant 882,800 352,740 530,060
Furniture and fixtures 134,240 89,270 44,970
1,017,040 442,010 575,030
Current Assets
Stock: Raw materials 30,200
Work-in-progress 97,200
Finished goods 85,200 212,600
Debtors 107,500
Bank 72,910
393,010
Less Current Liabilities
Creditors 63,920
Accruals ($12,500 + $1,880) 14,380 78,300
Net current assets 314,710
889,740
Less Long-term Liabilities
Loan from government 340,000
549,740
Financed by:
Capital as at 1 April 20X4 300,000
Add Net profit for the year 249,740
549,740

29.10
(a) International Company
Manufacturing Account for the year ended 31 December 20X6
$ $
Purchases of raw materials 40,600
Less Returns outwards 800 39,800
Add Carriage inwards 1,000
40,800
Less Closing stock of raw materials 2,620
(i) Cost of raw materials consumed 38,180
Add Direct expenses ($3,850 + $350) 4,200
Subcontracting charges 2,910 7,110
(ii) Prime cost 45,290
Factory overheads:
Insurance [($2,500 – $450) × 50%] 1,025
Factory wages 1,800
Electricity and water ($1,600 – $200) 1,400
Cleaning expenses ($1,000 × 80%) 800
Fuel and power 800
Rent [($4,000 + $800) × 70%] 3,360
Provision for depreciation: Plant and machinery [($75,000 × 40%) × 85%] 25,500
Lorry [($50,000 × 40%) × 60%] 12,000 46,685
91,975
Less Work-in-progress as at 31 December 20X6 7,500
(iii) Production cost of goods completed 84,475

184
(b) International Company
Trading and Profit and Loss Account for the year ended 31 December 20X6
China TV Japan TV Total
$ $ $ $ $
Sales 90,000 100,000 190,000
Less Returns inwards 4,200 2,900 7,100
Net sales 85,800 97,100 182,900
Less Cost of goods sold:
Production cost of goods completed 84,475 –
Purchases – 68,500
Less Closing stock 6,000 78,475 8,000 60,500 138,975
Gross profit 7,325 36,600 43,925
Less Operating expenses:
Insurance [($2,500 – $450) × 50%] 1,025
Bad debts 310
Cleaning expenses ($1,000 × 20%) 200
Rent [($4,000 + $800) × 30%] 1,440
Discounts allowed 270
Carriage outwards 9,600
Provision for doubtful debts ($3,700 × 2%) 74
3
Bank loan interest ($10,000 × 5% × 12 ) 125
Provision for depreciation: Plant and machinery [($75,000 × 40%) × 15%] 4,500
Lorry [($50,000 × 40%) × 40%] 8,000 25,544
Net profit 18,381

(c) International Company

Balance Sheet as at 31 December 20X6
Cost Accumulated Net book
depreciation value
Fixed Assets $ $ $
Plant and machinery 75,000 30,000 45,000
Lorry 50,000 20,000 30,000
125,000 50,000 75,000
Current Assets
Stock: Raw materials 2,620
Work-in-progress 7,500
Finished goods 6,000
Imported goods 8,000 24,120
Debtors 3,700
Less Provision for doubtful debts 74 3,626
Prepayments ($200 + $450) 650
28,396
Less Current Liabilities
Creditors 5,200
Accruals ($800 + $350 + $125) 1,275
Bank overdraft 240 6,715
Net current assets 21,681
96,681
Financed by:
Capital as at 1 January 20X6 68,300
Add Net profit for the year 18,381
86,681
Long-term Liabilities
5% Bank loan 10,000
96,681

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 29.13
(a) Porter Watch Company
Manufacturing Account for the year ended 31 March 20X8
$ $
Opening stock of raw materials 40,200
Add Purchases of raw materials 210,000
250,200
Add Carriage inwards on raw materials 4,000
254,200
Less Closing stock of raw materials 36,100
Cost of raw materials consumed 218,100
Add Manufacturing wages 110,000
Prime cost 328,100
Factory overheads:
Insurance ($35,000 – $3,000) 32,000
Rent and rates 120,000
Electricity ($40,000 + $2,000) 42,000
Foreman wages ($25,000 + $13,100) 38,100
Provision for depreciation: Plant and machinery (W1) 56,484 288,584
616,684
Add Work-in-progress as at 1 April 20X7 8,100
624,784
Less Work-in-progress as at 31 March 20X8 7,600
Total cost of goods produced 617,184
Manufacturing profit ($617,184 × 40%) 246,874
Transfer price of finished goods completed 864,058

(b) Trading and Profit and Loss Account for the year ended 31 March 20X8
$ $
Sales 1,810,000
Less Sales returns ($1,810,000 × 0.1%) 1,810
1,808,190
Less Cost of goods sold:
Opening stock of finished goods 20,000
Add Transfer price of finished goods completed 864,058
884,058
Less Closing stock of finished goods 29,000 855,058
Gross profit from trading 953,132
Manufacturing profit 246,874
1,200,006
Less Selling and distribution expenses 170,000
Provision for depreciation: Motor vehicles (W2) 7,258
Administrative expenses ($96,000 – $510) 95,490
Provision for depreciation: Office equipment (W3) 6,800
Increase in provision for unrealised profit (W4) 2,571 282,119
Net profit 917,887

Workings:
3
(W1) Provision for depreciation: Plant and machinery = ($500,000 – $289,063) × 25% + ($60,000 × 25% × 12 )
= $56,484
(W2) Provision for depreciation: Motor vehicles = ($84,000 – $65,856) × 40%
= $7,258
8
(W3) Provision for depreciation: Office equipment = $60,000 × 10% + $12,000 × 10% ×
12
= $6,800
(W4) Increase in provision for unrealised profit = ($29,000 – $20,000) × 40 = $2,571
140

186
29.14X
(a) Welcome Manufacturing Company
Manufacturing Account for the year ended 31 March 20X8
$ $ $
Opening stock of raw materials 20,000
Purchases of raw materials 162,400
Less Returns outwards 3,330 159,070
179,070
Add Carriage inwards 3,920
182,990
Less Closing stock of raw materials 28,100
Cost of raw materials consumed 154,890
Direct labour 20,600
Prime cost 175,490
Factory overheads:
Electricity and water ($9,670 – $1,670) 8,000
Consumable tools ($11,000 + $32,100 – $21,000) 22,100
General production expenses ($28,000 + $2,200) 30,200
Indirect labour 19,900
Factory manager’s salaries 12,000
Provision for depreciation: Plant and machinery {[($271,000 – $108,400) × 20%
7
+ ($6,000 × 20% × 12 )] × 80%} 26,576
4
Office equipment [($135,000 × 10% × 12 ) × 40%] 1,800 28,376 120,576
296,066
Add Work-in-progress as at 1 April 20X7 37,000
333,066
Less Work-in-progress as at 31 March 20X8 30,200
302,866
Add Manufacturing profit ($302,866 x 20%) 60,573
Transfer price of goods completed c/f 363,439

(b) Welcome Manufacturing Company

Trading and Profit and Loss Account for the year ended 31 March 20X8
$ $
Sales 480,600
Less Returns inwards 1,600
479,000
Less Cost of goods sold:
Opening stock of finished goods 49,500
Add Transfer price of goods completed b/f 363,439
412,939
Less Closing stock of finished goods 36,000 376,939
Gross profit 102,061
Manufacturing profit 60,573
162,634
20
Add Decrease in provision for unrealised profit [$8,250 – ($36,000 × 120 )] 2,250
164,884
Less Operating expenses:
General administrative expenses 19,250
Repairs to office equipment 3,210
Rent and rates 51,000
Administrative staff salaries ($42,000 – $12,000) 30,000
Carriage outwards 5,900
Advertising ($880 + $100) 980
Provision for depreciation: Plant and machinery {[($271,000 – $108,400) × 20%
7
+ ($6,000 × 20% × 12 )] × 20%} 6,644
4
Office equipment [($135,000 × 10% × 12 ) × 60%] 2,700 119,684
Net profit 45,200
187
 (c) Welcome Manufacturing Company
Balance Sheet as at 31 March 20X8
Accumulated Net book
Cost depreciation value
Fixed Assets $ $ $ $
Plant and machinery 277,000 141,620 135,380
Office equipment 135,000 4,500 130,500
412,000 146,120 265,880
Current Assets
Stocks: Raw materials 28,100
Work-in-progress 30,200
Finished goods 36,000
Less Provision for unrealised profit 6,000 30,000
Consumable tools 21,000 109,300
Debtors 47,250
Prepayment 1,670
Bank 8,800
167,020
Less Current Liabilities
Creditors 22,000
Accruals ($100 + $2,200) 2,300 24,300
Net current assets 142,720
408,600
Financed by:
Capital (W1) 363,400
Add Net profit 45,200
408,600
Workings:
(W1)
Trial Balance as at 31 March 20X8
Dr Cr
$ $
General administrative expenses 19,250
Repairs to office equipment 3,210
Electricity and water 9,670
Plant and machinery 271,000
Office equipment 135,000
Stocks ($20,000 + $37,000 + $49,500 + $11,000) 117,500
Provision for unrealised profit 8,250
General production expenses 28,000
Rent and rates 51,000
Wages and salaries ($20,600 + $19,900 + $42,000) 82,500
Provision for depreciation: Plant and machinery 108,400
Sales 480,600
Purchases of raw materials 162,400
Carriage inwards 3,920
Carriage outwards 5,900
Returns from customers 1,600
Returns to suppliers 3,330
Machines maintenance expenses 6,000
Debtors 47,250
Creditors 22,000
Bank 8,800
Purchases of consumable tools 32,100
Advertising 880
Capital (missing figure) 363,400
985,980 985,980

188