UNIT 07

MANUFACTURING ACCOUNTS

 INTRODUCTI
ON
 Manufacturing account is prepared to determine the cost incurred for the
production process during a certain period of time.
 Manufacturing account ;

………………………………………………………………………………………………………………………

………………………………………………………………………………………………………………………

………………………………………………………………………………………………………………………

 ELEMENTS OF MANUFACTURING COST

 The cost of a product can be mainly divided into three main categories.

I. ……………………………………………………………..

II. ……………………………………………………………..

III. ……………………………………………………………..
 These elements can also be categorized as direct and indirect.
 Direct cost

………………………………………………………………………………………………………………………

………………………………………………………………………………………………………………………

………………………………………………………………………………………………………………………
 Indirect cost

………………………………………………………………………………………………………………………

………………………………………………………………………………………………………………………

………………………………………………………………………………………………………………………
 Total of direct cost is known as PRIME COST.

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  Total of indirect cost is known as OVERHEADS COST.
 Direct costs (prime cost)
 The cost that can be specifically identified with a cost unit.
 Direct cost is the cost that ;
I. …………………………………………………………………………………………………………….

II. …………………………………………………………………………………………………………….

III. ……………………………………………………………………………………………………………
Direct material cost

 The costs of material which become a part of finished product.

Eg: …………………………………………………………………………………………….
Direct labour cost

 The payments made to employees who are directly involving in the

manufacturing process.

Eg: ……………………………………………………………………………………………..
Direct expenses

 The expenses other than direct material or direct labour which are directly
attributable to a specific cost unit.

Eg: …………………………......................................................................

 Indirect costs (overheads)

 The cost that cannot be specifically identified with a cost unit I an effective
manner.
 Indirect cost is the cost that ;
I. …………………………………………………………………………………………………………….

II. …………………………………………………………………………………………………………….

III. ……………………………………………………………………………………………………………

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 Indirect material cost

 The costs of material which do not become a part of finished product.

Eg: …………………………………………………………………………………………….
Indirect labour cost

 The payments made to employees who are not directly involving in the
manufacturing process.

Eg: ……………………………………………………………………………………………..
Indirect expenses

 The cost other than direct costs, indirect materials and indirect labour costs.

Eg: …………………………......................................................................

 Total cost
 Total cost of a product consists of :

I. ………………………………………………………………………………………………………………

………………………………………………………………………………………………………………

…………………………………………………………………………………………………………….

II. ………………………………………………………………………………………………………………

………………………………………………………………………………………………………………

………………………………………………………………………………………………………………

………………………………………………………………………………………………………………

………………………………………………………………………………………………………………

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 Cost per unit (unit cost)
 Unit cost can be calculate as follows.

Cost per unit =


Inventories in manufacturing organization
 The inventories in a manufacturing organization can be categorized as:

1. ……………………………………………………………………………………………………………..

2. ………………………………………………………………………………………………………………

3. ………………………………………………………………………………………………………………

 Determination of manufacturing cost

Prime Cost = Raw Materials Consumed + Direct Labour + Direct Expenses
Raw Materials Consumed = Opening Raw Material Stock + Raw Material Purchases - Closing Raw Materials

Manufacturing cost = Prime Cost

+ Production Overheads
+ Opening Work In Progress
- Closing Work In Progress
 The above formula can be used when the value of the work in progress is valued
at manufacturing cost.
 If the work in progress is valued at prime cost, it should be adjust before
calculating the prime cost as follows.
 Valuation of WIP at prime cost,
Prime Cost = Raw Materials Consumed
+ Direct Labour
+ Direct Expenses
+ Opening Work In Progress

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 - Closing Work In Progress

Format for a manufacturing account

Navindu’s business
Manufacturing account
For the year ended 31/03/2020

Raw materials consumed

Opening stock

Add – purchases
Custom duties
Carriage inwards

Less – return outwards

Raw materials available for production

Less – closing stock

Raw available for consumption

Direct labour
Direct expenses

Prime cost

Production overheads
Electricity
Factory rent
Factory insurance
Machinery maintenance
Machinery depreciation

Add – opening work in progress

Less – closing work in progress

Manufacturing cost

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 Practice questions
1) By considering following information of Nadun’s business, calculate
I. Prime cost
II. Total manufacturing cost
III. Total cost
IV. Cost per unit
V. Profit per unit
VI. Selling price per unit
Information: (Rs.)
Direct materials 160 000
Other direct costs 20 000
Other overheads 50 000
Direct labour 40 000
Production overheads 30 000
Total units produced 1000 units
Profit on cost 25%
2) Following information was extracted from Hasini’s business for the year ended
31/03/2020.(Rs.)
Work in progress on 01/04/2019 90 000
Work in progress on 31/03/2020 80 000
Direct materials used 890 000
Direct labour 122 000
Factory overheads 508 000
 Find the cost of goods manufactured during the year ended 31/03/2020.

3) Following information was extracted from Hasini’s business for the year ended
31/03/2020.(Rs.)
Work in progress on 01/04/2019 260 000
Work in progress on 31/03/2020 190 000
Direct materials used 990 000
Direct labour 610 000
Royalty expenses 200 000

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Production overheads 800 000

 Find the cost of goods manufactured during the year ended 31/03/2020.

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