4 April 2022

Class activity: Manufacturing account

1. Explain the purpose of a manufacturing account. [1]

It is used to calculate the cost of goods produced within the financial year

2. Explain the difference between the following:

a. prime cost and cost of production [2]

Prime cost is the total of direct materials, direct labour and direct expenses while the
cost of production is the total of prime cost plus factory overheads and it would be the
total cost of manufacturing the goods completed.

b. direct labour and indirect labour [2]

Direct labour is the wages of people who are employed in the factory making the goods
while indirect labour is involved in operating within the factory but it cannot be linked
with the product being manufactured.

3. The Vasant Vihar Manufacturing Company provided the following information:

1 January 20-4 31 December 20-4

$ $
Inventory- Raw material 16,650 17,720
Work in progress 18,222 19,115
Factory operatives’ wages 1,850 1,990
outstanding
Factory insurance prepaid 760 800

For the year ended 31 December 20-4:

$
Purchases of raw material 210,500
Carriage on raw materials 3,120
 Wages-Factory operatives 197,280
Factory supervisors 32,100
Factory rent and rates 15,500
Factory insurance 4,800
Factory general expenses 12,700

The factory machinery cost $56,000. The depreciation of the factory machinery up to
31 December 20-3 totalled $20,160. The machinery is being depreciated using the
reducing balance method at the rate of 20% per annum. 56000-20160 = 35840
35840x0.2 = 7168
REQUIRED.
Prepare the manufacturing account of The Vasant Vihar Manufacturing Company
for the year ended 31 December 20-4.

The Vasant Vihar Manufacturing Company

Manufacturing account for the year ended 31 December 20-4
$ $ $
Cost of material consumed
Opening inventory of raw material 16650
Purchases of raw materials 210500
Carriage on raw materials 3120
230270
Less: Closing inventory of raw material 17720 212550
Direct wages 197420
Prime cost 409970
Factory overheads
Factory supervisors’ wages 32100
Factory rent and rates 15500
Factory insurance 4760
Factory general expenses 12700
Depreciation-factory machinery 7168 72228
482198
Add: Opening work in progress 18222
 500420
Less: Closing work in progress 19115
Cost of production 481305
[15]