12/10/2021

What is a Manufacturing Business?

Accounting for a • A manufacturing business buys raw materials and changes these into
finished goods to make them ready for resale.

Manufacturing Business

Product cost Product cost

• Three elements of product cost:

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Product cost Period Cost

• This covers the distribution/selling expenses and
general/administrative expenses of the company.

• These expenses are common in service, merchandising, and

manufacturing businesses, and are necessary in operating the
business.

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Period Cost Sales Price

• Distribution/selling expenses – freight, advertising, sales salaries, • To arrive at the sales price, a certain mark up is added to the cost of
sales commissions, depreciation of delivery trucks, repairs and the product.
maintenance of delivery trucks, and store supplies for promoting the
business.
• Based on the previous example, the unit price of the product is P 200.
If the mark up is 50% of unit price, then the sales price is P 300.
• General/administrative expense – office expenses, insurance, taxes
and licenses, depreciation of office equipment, repairs and
maintenance of office equipment, etc.

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Full cost pricing Allocated or Common Costs

• This method determined the sales price based on total cost.

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