S5 Manufacturing Account/LWL

Manufacturing Accounts ( A.

Function of a Manufacturing Acccount For those businesses which deal with manufacturing products. It is common in todays 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 ( ).

B.

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

D.

E.

S5 Manufacturing Account/LWL

F.

Format Company Name Manufacturing, 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 (1.1.200x ) Less: Closing Work-in-Progress (31.12.200y) xxxx (xxx) _____ PRODUCTION COST OF GOODS COMPLETED c/d
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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

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.g. Office rent and rates Administrative salaries General adminstration expenses Depreciation of office furniture, office equipment Selling and Distribution Expenses e.g. Advertising expenses Sales Commissions Carriage Outwards Financial Expenses e.g. Discounts allowed Bad Debts Provisions for Bad Debts

(xxx) _____ NET PROFIT FOR THE YEAR XXX ====

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 ====
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Working Capital

FINANCED BY: Capital on 1.1.200x Add: Net Profit for the year

Less: Drawings

S5 Manufacturing Account/LWL

G.

Difficult Entries: Example: Trial Balance for the year ended 31 December 2002 Dr. $ Opening Stock: Loose Tools Purchases of loose tools Carriage inwards Wages and salaries: administrative staff 12,000 36,000 195,000 420,000 Cr. $

Notes: 1. Closing Stock: Loose Tools $8,000 2. Salaries of administrative staff included an amount of $80,000 payable to th factory manager as a bonus. Answer: Manufacturing Account for the year ended 31 December 2002 _________________________________________________________________

S5 Manufacturing Account/LWL

Exercises Question 1 Tictac Ltd. Manufactured and sold sports shoes. It had also decided to import genuine leather shoes to meet the needs of the local consumers. The following balances were extracted from the books on 31 December 1990: $ Carriage inwards: shoes imported 62,300 Carriage outwards 6,500 Electricity 5,600 Factory expenses 44,000 Manufacturing wages 137,500 Office expenses 19,700 Office furniture and fixtures at cost 121,000 Opening stocks: Finished goods at cost 52,300 Work in progress at cost 23,800 Plant and machinery at cost 308,000 Purchases: shoes imported 352,000 Rates and insurance 8,300 Raw materials consumed 354,900 Returns inwards: Shoes manufactured 13,400 Office salaries 146,800 Sales: Shoes manufactured 925,300 Shoes imported 538,600 Selling expenses 36,200

Additional information: (i) Closing stocks valued at cost: $ Shoes manufactured Shoes imported 55,400 Work in progress 36,700 (ii) From 1 January 1990 onwards, the manufactured goods are transferred to the trading account at factory cost plus 25% profit loading. (iii) Depreciation is to be provided at 10% on cost for office furniture and fixtures and plant and machinery. (iv) The expenses on electricity, and rates and insurance are chargeable three-fifths to the factory and the balance to the office. (v) On 1 July 1990, the company issued for cash $300,000 10% debentures repayable at the end of June 1995. (vi) On 31 December 1990, accrued office salaries amounted to $13,200 and the prepaid insurance premium was $2,300. REQUIRED: Prepare for Tictac Ltd. The following accounts for the year ended 31 December 1990:
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S5 Manufacturing Account/LWL

A manufacturing account showing the prime cost and the total cost of manufactured shoes transferred to the trading account. (b) A trading and profit and loss account showing separately the gross profit on sales of manufactured shoes and imported shoes. (91Q.9) Question 2 Success Limited is a retailer of kitchenware. Most goods it trades are purchased from various suppliers in a finished form. In addition, the company manufactures several types of kettles. 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 - 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 - Other goods Salaries Rent and rates Electricity Interest on loan Sundry expenses $ 200,000 23,000 164,000 120,000 100,000 160,000 20,000 10,000 170,000 160,000 48,000 50,000 2,200,000 430,000 1,150,000 257,000 22,000 10,500 9,000 7,100 ____________ 2,855,600 2,855,600 ======== ========

(a)

400,000

S5 Manufacturing Account/LWL

Additional information: (i) Depreciation is to be provided using the reducing balance method at the following rates: Motor vehicles 12.5% per annum Machinery 10% per annum The motor vehicle was purchased in 1996. It is the companys policy to charge a full years depreciation in the year of acquisition. (ii) Salaries include wages of $54,000 paid to the kettle-making employees. (iii) Rates prepaid at 30 April 1996 amounted to $2,000. (iv) Accruals at 30 April 1996 were: Electricity $1,500 (v) The apportionment of rent and rates and electricity to the kettle-making department is 25%. (vi) Stocks at 30 April 1996 were: $ Raw materials 40,000 Manufactured goods 12,500 Other goods 215,000 (vii) The directors proposed to transfer 440,000 of the profits to genral reserve and to declare a final dividend of $0.50 per share. REQUIRED: (a) a manufacturing, 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.7) Question 3 The following trial balance was extracted from the books of Rock Limited, a candy manufacturer, on 30 April 1999: $ $ Ordinary share capital of $1 each 240,000 General reserve 50,000 Retained profits 48,423 Machinery at cost 873,800 - accumulated depreciation as at 1 167,180 May 1998 Motor vehicles at cost 134,240 - accumulated depreciation as at 1 74,280 May 1998 8

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; 2/5 factory) Selling expenses

165,300 27,200 72,910 127,500 936,440

83,920 2,186,400 200,000

70,560 60,790 240,680 243,620 97,163 ________ 3,050,203 ========

_________ 3,050,203 =======

Additional information: (i) Stock as at 30 April 1999: $ Raw materials 97,200 Work in progress 30,200 Finished goods 88,400 (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 48,632 Factory maintenance 12,158 (iv) Accruals at 30 April 1999 were: $ Debenture interest ? Rent 4,380 (v) Rock Limited recently agreed to act as the consignee for Mountain Sweet Limited at a commission of 10% on sales. Consignment sales of $115,000 were credited to the sales account and consignment expenses of $26,500 were included in selling expenses. The unsold consignment goods were included in the closing stock of finished goods at $25,000. No information about the sales has been given to the consignor and no settlement has yet been made. (vi) The directors proposed to transfer $20,000 of the profits to general reserve and declare a final dividend of 30%.

S5 Manufacturing Account/LWL

REQUIRED TO PREPARE: (a) a manufacturing, trading and profit and loss account (with the section on appropriations) for the year ended 30 April 1999; and (11 marks) (b) a balance sheet as at the same date. (9 marks) (99 Q.9)

Question 4 The following information is supplied by the bookkeeper of the Overseas Manufacturing Company for the year ended 31 March 2001: $ Stocks, 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, at cost Office equipment, at cost Stocks, 31 March 2001 Raw materials Finished goods Work in progress 3,150,000 4,470,000 2,745,000 77,280,000 1,512,000 24,930,000 4,890,000 4,203,000 16,936,000 195,000 896,000 1,035,000 4,980,000 2,565,000 6,000,000 3,800,000 2,370,000 2,625,000 2,820,000

Additional information: (i) Depreciation was to be provided for: Plant and machinery 20% on cost Office equipment 25% on cost
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S5 Manufacturing Account/LWL

(ii) (iii)

(iv)

Electricity charges of $165,000 were in arrears at 31 March 2001. Electricity and water was to be apportioned as follows: Factory 80% Administration 20% Salaries of administrative staff included an amount of $80,000 payable to the factory manager as a bonus.

REQUIRED: Prepare the manufacturing and trading accounts of Overseas Manufacturing Company for the year ended 31 March 2001, showing clearly the cost of raw materials consumed, the prime cost, the production cost of finished goods and gross profit. (10 marks) (2001 Q.5) Question 6 On 30 April 2002, the following balances were extracted from the books of Wilson Manufacturing Company: Sales Purchases of raw materials Carriage inwards Carriage outwards Stocks, 1 May 2001 Raw materials Work in progress Finished goods Plant and machinery, at cost Office equipment, 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 $ 9,890,400 4,372,000 58,000 83,840 225,522 30,180 194,500 980,000 385,000 395,250 134,400 491,100 240,000 910,150 18,928 326,400 198,685

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S5 Manufacturing Account/LWL

Additional information: (i) Stocks as at 30 April 2002: $ Raw materials 115,290 Work in progress 94,840 Finished goods 181,900 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 $100,000 paid to the factory manager. 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. (2 marks) (b) Calculate the following for Wilson Manufacturing Company for the year ended 30 April 2002: (i) prime cost; (3 marks) (ii) total factory overheads; and (3 marks) (iii) production cost of each unit of finished goods, assuming that Wilson Manufacturing Company had produced 400,000 units of finished goods during the year. (3 marks) (c) Prepare the trading account of Wilson Manufacturing Company for the year ended 30 April 2002. (3 marks) (2002 Q.2)

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