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Manufacturing Account Minimum Knowledge Requirement Knowledge of Double Entry System Knowledge of Final Account.

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Presentation on theme: "Manufacturing Account Minimum Knowledge Requirement Knowledge of Double Entry System Knowledge of Final Account."— Presentation transcript:

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2 Manufacturing Account Minimum Knowledge Requirement Knowledge of Double Entry System Knowledge of Final Account

3 Content  Introduction Introduction  Brainstorm Brainstorm  Reasons for the Manufacturing a/c Reasons for the Manufacturing a/c  Characteristics of Manufacturing a/c Characteristics of Manufacturing a/c  How to prepare a manufacturing a/c?  How to write up a set of Final a/c? How to write up a set of Final a/c  Revision Revision

4 Introduction Back Nowadays, there is a trend of the manufacturers to set up their own retail shops to provide direct selling services to consumers. How can they calculate the profit and the costs they used while producing goods? So in this section, we will learn a new topic -  Manufacturing Account

5 Brainstorm Guess ….. 1.Whom are going to need this a/c? 2.Does it has any differences between the final a/c you have learnt before? 3.Can you name some of the company who need this a/c? Back

6 Reason for Manufacturing a/c Thinking …. What is the main purpose of preparing the Trading and Profit and Loss a/c? Main purpose of preparing the Trading and Profit and Loss a/c is the statement showing of which the profits are calculated. It is an satisfactory form of final a/c for a Trading Business. But… Is it a sufficient explanatory for manufacturing firms? Back

7 Reason for Manufacturing a/c No. Such firm will then prepare an additional a/c – the Manufacturing a/c which shows the factory or works cost of the goods produced. Day Books and Double Entry System Trial Balance Manufacturing a/c Trading and Profit and Loss a/c Balance Sheet Back

8 Characteristics of Manufacturing a/c Thinking …… When will the Manufacturing a/c use? Manufacturing a/c will be used by the manufacturers. So. Do you suggest some of the characteristics of a Manufacturing a/c. Back

9 Characteristics of Manufacturing a/c So. Here’re some of the Characteristics: It is designed to show…… - -the cost of goods manufactured under the normal conditions. - -The analysis of the elements of cost. Back

10 How to prepare a maufacturing account? What you will learn in this section …… 1. Different Headings of cost and expenses 2. The Format of Manufacturing a/c Back

11 How to prepare … T-Form To be Continued… Back

12 How to prepare … Raw Material All the raw materials consumed in the production process Back Vertical FormT Form

13 How to prepare … T-Form To be Continued… Back

14 How to prepare … Direct Labours Included the labours directly involved in production Back Vertical FormT Form

15 How to prepare … T-Form To be Continued… Back

16 How to prepare … Direct Expense Included the expenses directly involved in production e.g copyright, royalties Back Vertical FormT Form

17 How to prepare … T-Form To be Continued… Back

18 How to prepare … Prime Cost = direct costs and expenses used in the process of production. Direct costs and expenses = Cost of raw material consumed + Direct labour + Direct expense ++ Back Vertical FormT Form

19 How to prepare … Continued …. Back

20 How to prepare … Factory Overhead It is the total of indirect expenses. It may include: rent, rates, lighting and heating of the plant, depreciation and repairs of machinery, etc Back Vertical FormT Form

21 How to prepare … Continued …. Back

22 How to prepare … Gross cost of production = Prime Cost + Factory Overhead. - sometimes called the Cost of Production under the situation of no adjustment for work-in-progress + Prime Cost Back Vertical FormT Form

23 How to prepare … Continued …. Back

24 How to prepare … Work-in-progress Incomplete works at the end and beginning of the year Back Vertical FormT Form

25 How to prepare … Continued …. Back

26 How to prepare … Profit or loss on manufacture Cost of Goods produced < Market Price = Profit – debit side of manufacturing a/c Cost of Goods produced > Market Price =Loss - credit side of manufacturing a/c Back Vertical FormT Form

27 How to prepare … Continued …. Back

28 How to prepare … Net cost of production -After adjustments have been made, a figure of Net cost of Production is obtained. - This figure will transfer to Trading a/c Back Vertical Form

29 How to prepare … Net cost of Production The figure will transfer to Trading a/c Back

30 How to prepare … x Prime Cost X Royalties Direct Expense X Factory Wages Direct Labour Xx Less: Closing Stock X X Carriage Inwards X Add : Purchase X Opening stock $$$ Raw Material For the year ended 31 Dec 20-1 Manufacturing a/c Sometimes We may use Vertical Form. To be Continued… Back

31 How to prepare … X(Net Cost of Production) XProfit on Manufacture X XLess: Work-in-progress(31.12.20-1)Work-in-progress(31.12.20-1) X XAdd: Work-in-Progress (1.1.20-1)Work-in-Progress (1.1.20-1) X(Gross Cost of Production) x XDepreciation of Machinery XRepairs of Machinery XFactory Rent $$$Factory Overhead Continued…… Back

32 Illustration 1 Raw Material Purchased 36000 Carriages Inwards 3500 Royalties 2000 Factory Expenses 1800 Manufacturing Wages 17000 Raw Material (Opening Stock) 2000 ( Closing Stock) 2500 Please used the detail above to calculate:  Raw Material Consumed  Prime Cost Back

33 Illustration 1 Answer: 1. Raw Material Consumed Raw Material Consumed = Raw Material ( Opening Stock + Purchases + Carriages Inwards - Closing Stock ) 39000 2500Closing Stock 415003500Carriages Inwards 36000Purchases 2000Opening Stock Back

34 Illustration 1 Answer: 2. Prime Cost It is the sum of 1.Raw Material Consumed 2.Direct Labour 3.Direct Expense 42800 1800Direct Expense 2000Direct Labour 39000Raw Material Consumed Back

35 How to write up a set of Final accounts? What you will learn in this section…… The Entry of the Net Cost of Production of Manufacturing a/c into Trading a/c Classification of expenses in the Profit and Loss a/c Back

36 How to write up a set of Final accounts? Thinking … What item in Manufacturing account will also appear in Trading a/c? Back

37 How to write up a set of Final accounts? xx Less: Closing Stock xGross Profit c/d X Add: Cost of ProductionCost of Production X Opening Stock Less: Cost of goods sold XLess: Returns Inwards XSales $$$ For the year ended 31 Dec, 20-1 Trading a/c Back

38 Answer: Cost of Production The amount of the Cost of production in Manufacturing a/c will replace the item Purchases in a manufacturing firms

39 How to write up a set of Final accounts? $$$ xNet Profit Xx Financial Expense X Selling and Distributing Expense XLess: Administrative ExpenseAdministrative Expense XGross Profit b/d For the year ended 31 Dec 20-1 Profit and Loss a/c While in the Profit and Loss a/c, we divide the expenses under several headings. Back

40 How to write up a set of Final accounts? 1. Administrative Expenses It refers to the expenses paid during operating business.e.g. a. Directors’ Remuneration b. Salaries of Staff c. Repairs and Maintenance of Office Equipment d. Insurance, Telephone charges, Rent etc. Back

41 How to write up a set of Final accounts? $$$ xNet Profit Xx Financial Expense X Selling and Distributing Expense XLess: Administrative Expense XGross Profit b/d For the year ended 31 Dec 20-1 Profit and Loss a/c Back

42 How to write up a set of Final accounts? 2. Selling and Distributing Expense It refers to the expenses paid during selling and disturbing of goods.e.g. Selling Commission Advertisement Carriage Outwards Market Research etc. Back

43 How to write up a set of Final accounts? $$$ xNet Profit Xx Financial Expense X Selling and Distribing Expense XLess: Administrative Expense XGross Profit b/d For the year ended 31 Dec 20-1 Profit and Loss a/c Back

44 How to write up a set of Final accounts? 3. Financial Expenses It refers to the expense paid in the financial issues.e.g. Discount allowed Bank Charges,etc. Back

45 Illustration 2 Try to classify the following items into  Administrative Expenses  Selling and Distributing Expense  Financial Expense 1. Office Salaries 2. Bank Charges 3. Provision for depreciation 4. Delivery Expense 5. Discount Allowed 6. Telephone Charges 7. Directors’ Renumeration 8. Advertisement 9. Selling commission 10. Interest on Loan Administrative Expenses 1. Offices Salaries 2. Provision of Depreciation 3. Directors’ Renumeration 4. Telephone Charges Selling and Distributing Expense 1. Delivery Expense 2. Advertisement 3. Selling Commission Financial Expense 1. Bank Charges 2. Discount Allowed 3. Interest on Loan Back

46 Revision - What is Manufacturing a/c? - An account used in Manufacturing Firms - Shown the cost of goods manufactured - Also shown the analysis of the the elements of the cost. Back

47 Revision - Why we prepare Manufacturing a/c? - Only Trading and Profit and Loss a/c is not a sufficiently explanatory for a manufacturing firms - So, we have to open an additional a/c – manufacturing a/c Back

48 Revision - Different Headings Plus Factory Overhead - Gross Production Cost Raw Material Consumed - Direct Labour - Prime Cost Direct Expense - Plus or Less Work-in-progress of the period - Net Gross Production Cost Back

49 - Prime cost - direct costs and expenses - Factory Overhead - indirect expenses - Gross cost of production = Prime Cost +Factory Overhead - Work-in-progress - incomplete goods - Profit or Loss Manufactured - Cost of goods Produced< Market Price - Profit Cost of goods Produced> Market price - Loss - Net cost of Production - Figure that transfers to Trading a/c - Obtained after all adjustment were made - Administrative, Selling and Distributing and Financial Expense - Classification of all trading expenses Revision - Different Headings Back


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