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Manufacturing Accounts ( A.
Function of a Manufacturing Acccount For those businesses which deal with manufacturing products. It is common in today’s business to act both as manufacturer ( ) and retailer ( ). e.g Crocodile, Bossini, G2000, U2. What is the advantage as being a manufacturer as well as a retailer? Division of Costs The purpose of a Manufacturing Account is to ascertain Cost of Production ( ).
Cost of Production = Prime Cost + Factory Overheads + Opening Work in Progress – Closing Work in Progress C. Prime Cost ( ) Prime cost is the DIRECT expenses which can be traced back to each unit of production. It consists of: (1) Direct Materials ( ) (2) Direct Wages ( ) (3) Direct Expenses e.g. Royalty ( ) Factory Overheads ( ) Indirect expenses in the factory which helps production of goods. e.g. Indirect wages, rent and rates of the factory, depreciation of plant and machinery, factory fuel and power, etc. ) Work in Progress ( Where goods have not been completed, they cannot be sold in the year. For ease of accounts recording, the ‘whole’ of the Work-in-Progress is calculated. The treatment is the same as in Opening Stock and Closing Stock, i.e. + Opening WIP – Closing WIP
Format Company Name Manufacturing.12.200x ) Less: Closing Work-in-Progress (31.S5 Manufacturing Account/LWL F.200y) xxxx (xxx) _____ PRODUCTION COST OF GOODS COMPLETED c/d 2 Less: Return Outwards Less: Closing Stock (Raw materials) Cost of Raw Materials Consumed Direct Materials Direct Expenses (Royalty) PRIME COST FACTORY OVERHEADS: Factory rent and rates Fuel and power Indirect wages Lubricants ( ) Depreciation of plant and machinery XXX _______ XXXX .1. Trading and Profit and Loss Account for the year ended 31 December 200X _________________________________________________________________ $ $ $ Raw Materials: Opening Stock Purchases (Raw Materials) Add : Carriage Inwards xxx xxxx xx _____ xxxx (xx) _____ xxxx ______ xxxx (xx) ____ xxxx xxx xxx ______ XXXX xxx xxx xx xxx xxx _____ XXXX ________ XXXX WORK-IN-PROGRESS Opening Work-in-Progress (1.
S5 Manufacturing Account/LWL ===== (Trading Account) Finished Goods Sales Less: Cost of Goods Sold Opening Stock Add: Production Cost of Goods Completed b/d xxxx xxx xxxx _____ xxxx (xxx) _____ Less: Closing Stock (xxx) _____ XXX GROSS PROFIT Less : Expenses Administrative Expenses (Office expenses) e. Advertising expenses Sales Commissions Carriage Outwards Financial Expenses e. Discounts allowed Bad Debts Provisions for Bad Debts (xxx) _____ NET PROFIT FOR THE YEAR XXX ==== 3 .g. Office rent and rates Administrative salaries General adminstration expenses Depreciation of office furniture. office equipment Selling and Distribution Expenses e.g.g.
200x Add: Net Profit for the year Less: Drawings .1.S5 Manufacturing Account/LWL Balance Sheet as at 31 December 200X FIXED ASSETS Cost Net Book Value xxxxx xxx xxxx xxxx xxx xxxx _______________________________ xxxxx xxx xxxx =============== xxx xx xxx xxx (xxx) _____ Accumulated Depreciation Machinery Office Equipment CURRENT ASSETS Stock : Raw Materials Work in Progress Finished Goods Debtors Less: Provisions for Bad Debts Prepaid Expenses Bank Cash xxx xx xxx xxx _____ xxxx Less: CURRENT LIABILITIES Creditors Accrued expenses xxx xx ___ (xxx) _____ xxx _____ xxxx ==== xxxx xxx ______ xxxx (xxx) _____ xxxx ==== 4 Working Capital FINANCED BY: Capital on 1.
$ Notes: 1. Salaries of administrative staff included an amount of $80.S5 Manufacturing Account/LWL G. Difficult Entries: Example: Trial Balance for the year ended 31 December 2002 Dr.000 195.000 36. $ Opening Stock: Loose Tools Purchases of loose tools Carriage inwards Wages and salaries: administrative staff 12.000 payable to th factory manager as a bonus.000 2.000 420.000 Cr. Closing Stock: Loose Tools $8. Answer: Manufacturing Account for the year ended 31 December 2002 _________________________________________________________________ 5 .
000 Opening stocks: Finished goods at cost 52.000 Manufacturing wages 137. It had also decided to import genuine leather shoes to meet the needs of the local consumers.500 Electricity 5. REQUIRED: Prepare for Tictac Ltd.500 Office expenses 19.300 Carriage outwards 6.300 Shoes imported 538.800 Plant and machinery at cost 308.S5 Manufacturing Account/LWL Exercises Question 1 Tictac Ltd. (iv) The expenses on electricity. The following balances were extracted from the books on 31 December 1990: $ Carriage inwards: shoes imported 62.000 10% debentures repayable at the end of June 1995. (vi) On 31 December 1990.600 Factory expenses 44.800 Sales: Shoes manufactured 925.300. and rates and insurance are chargeable three-fifths to the factory and the balance to the office. The following accounts for the year ended 31 December 1990: 6 .900 Returns inwards: Shoes manufactured 13.600 Selling expenses 36. accrued office salaries amounted to $13.400 Work in progress 36.700 Office furniture and fixtures at cost 121. (iii) Depreciation is to be provided at 10% on cost for office furniture and fixtures and plant and machinery.000 Purchases: shoes imported 352.700 (ii) From 1 January 1990 onwards.300 Work in progress at cost 23. the company issued for cash $300.200 Additional information: (i) Closing stocks valued at cost: $ Shoes manufactured Shoes imported 55. (v) On 1 July 1990.300 Raw materials consumed 354.000 Rates and insurance 8. the manufactured goods are transferred to the trading account at factory cost plus 25% profit loading. Manufactured and sold sports shoes.200 and the prepaid insurance premium was $2.400 Office salaries 146.
000 160. In addition.accumulated depreciation as at 1 May 1995 Motor vehicles – at cost Stocks at 1 May 1995 Raw materials Manufactured goods Other goods Debtors Creditors Bank Sales Purchases – Raw materials .000 7.000 10.000 7 . (91Q.200.000 23.100 ____________ 2.855.Other goods Salaries Rent and rates Electricity Interest on loan Sundry expenses $ 200.000 100. the company manufactures several types of kettles.000 257.000 430.000 20.000 120.S5 Manufacturing Account/LWL A manufacturing account showing the prime cost and the total cost of manufactured shoes transferred to the trading account.000 1.000 22. The bookkeeper drew up the following trial balance at 30 April 1996: $ Ordinary share capital of $1 each General reserve Retained profits 15% long-term loan Machinery – at cost .000 164.000 170.600 2. Most goods it trades are purchased from various suppliers in a finished form.000 2. (b) A trading and profit and loss account showing separately the gross profit on sales of manufactured shoes and imported shoes.9) Question 2 Success Limited is a retailer of kitchenware.150.000 160.500 9.600 ======== ======== (a) 400.000 10.855.000 48.000 50.
000 General reserve 50. REQUIRED: (a) a manufacturing.423 Machinery – at cost 873.accumulated depreciation as at 1 167.500 (v) The apportionment of rent and rates and electricity to the kettle-making department is 25%. It is the company’s policy to charge a full year’s depreciation in the year of acquisition.000. (ii) Salaries include wages of $54. trading and profit and loss account (with the section on appropriations) for the year ended 30 April 1996: and (13 marks) (b) a balance sheet (7 marks) (97 Q. (iii) Rates prepaid at 30 April 1996 amounted to $2.180 May 1998 Motor vehicles – at cost 134.500 Other goods 215.000 of the profits to genral reserve and to declare a final dividend of $0. (iv) Accruals at 30 April 1996 were: Electricity $1.000 Manufactured goods 12.800 .000 paid to the kettle-making employees.S5 Manufacturing Account/LWL Additional information: (i) Depreciation is to be provided using the reducing balance method at the following rates: Motor vehicles – 12.000 (vii) The directors proposed to transfer 440.accumulated depreciation as at 1 74.5% per annum Machinery – 10% per annum The motor vehicle was purchased in 1996. (vi) Stocks at 30 April 1996 were: $ Raw materials 40.7) Question 3 The following trial balance was extracted from the books of Rock Limited.240 .280 May 1998 8 .000 Retained profits 48. on 30 April 1999: $ $ Ordinary share capital of $1 each 240.50 per share. a candy manufacturer.
440 83. 9 .500 936.560 60.000 of the profits to general reserve and declare a final dividend of 30%.790 240.200 72.050. The unsold consignment goods were included in the closing stock of finished goods at $25.186.000 were credited to the sales account and consignment expenses of $26.300 27. 2/5 factory) Selling expenses 165.050.200 Finished goods 88.632 Factory maintenance 12.163 ________ 3.400 (ii) Depreciation was to be provided for: Machinery – 20% on cost Motor vehicles – 25% on net book value (iii) Analysis of the wages figure revealed: $ Direct manufacturing 48. (vi) The directors proposed to transfer $20.400 200.S5 Manufacturing Account/LWL Stock as at 1 May 1998 Raw materials Work in progress Finished goods Debtors and creditors Sales Purchases of raw materials 8% debentures (issued in 1990) Bank Wages Salaries Rent and rates (3/5 office.620 97.000. No information about the sales has been given to the consignor and no settlement has yet been made. Consignment sales of $115.200 Work in progress 30.203 ======== _________ 3.158 (iv) Accruals at 30 April 1999 were: $ Debenture interest ? Rent 4.680 243.910 127.500 were included in selling expenses.000 70.380 (v) Rock Limited recently agreed to act as the consignee for Mountain Sweet Limited at a commission of 10% on sales.203 ======= Additional information: (i) Stock as at 30 April 1999: $ Raw materials 97.920 2.
470.000 896.745.000 4.000 4.000 2.S5 Manufacturing Account/LWL REQUIRED TO PREPARE: (a) a manufacturing.000 2.980.930.000 24.370.9) Question 4 The following information is supplied by the bookkeeper of the Overseas Manufacturing Company for the year ended 31 March 2001: $ Stocks.000 16.800.000 1.203.000 2.820.035.512. trading and profit and loss account (with the section on appropriations) for the year ended 30 April 1999.280. and (11 marks) (b) a balance sheet as at the same date.000 2.150.936.890.000 1.000 77.000 6.000 4. at cost Office equipment.000 4. at cost Stocks.000 2.000. (9 marks) (99 Q.625. 1 April 2000 Raw materials Finished goods Work in progress Sales Sales commission Wages and salaries Direct labour Indirect labour Administrative staff Purchases of raw materials Carriage inwards Carriage outwards Electricity and water Other production expenses Other administration expenses Plant and machinery.000 Additional information: (i) Depreciation was to be provided for: Plant and machinery 20% on cost Office equipment 25% on cost 10 . 31 March 2001 Raw materials Finished goods Work in progress 3.000 3.000 195.565.
400 491.400 4.000 58.250 134.840 225. the following balances were extracted from the books of Wilson Manufacturing Company: Sales Purchases of raw materials Carriage inwards Carriage outwards Stocks. REQUIRED: Prepare the manufacturing and trading accounts of Overseas Manufacturing Company for the year ended 31 March 2001.000 385.000 payable to the factory manager as a bonus. 1 May 2001 Raw materials Work in progress Finished goods Plant and machinery. showing clearly the cost of raw materials consumed.S5 Manufacturing Account/LWL (ii) (iii) (iv) Electricity charges of $165. the prime cost. the production cost of finished goods and gross profit.180 194.000 were in arrears at 31 March 2001.685 11 .890.150 18.372.400 198.5) Question 6 On 30 April 2002.000 395.522 30. at cost Rent and rates Electricity and water Wages and salaries Direct labour Indirect labour Administrative staff Repairs to machinery Other production expenses Other administrative expenses $ 9.100 240. at cost Office equipment.928 326. Electricity and water was to be apportioned as follows: Factory 80% Administration 20% Salaries of administrative staff included an amount of $80.000 910.500 980. (10 marks) (2001 Q.000 83.
(3 marks) (ii) total factory overheads. Electricity and water was to be apportioned as follows: Factory 75% Administration 25% Rent and rates was to be apportioned as follows: Factory 80% Administration 20% (ii) (iii) (iv) (v) REQUIRED: (a) Briefly explain the difference between direct costs and indirect costs. assuming that Wilson Manufacturing Company had produced 400.290 Work in progress 94. (3 marks) (c) Prepare the trading account of Wilson Manufacturing Company for the year ended 30 April 2002.S5 Manufacturing Account/LWL Additional information: (i) Stocks as at 30 April 2002: $ Raw materials 115.2) 12 . (3 marks) (2002 Q.000 paid to the factory manager. and (3 marks) (iii) production cost of each unit of finished goods. (2 marks) (b) Calculate the following for Wilson Manufacturing Company for the year ended 30 April 2002: (i) prime cost.900 Depreciation was to be provided for: Plant and machinery 15% on cost Office equipment 20% on cost Salaries of administrative staff included an amount of $100.840 Finished goods 181.000 units of finished goods during the year.
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