MANUFACTURI

NGACCOUNTS
Endofchapt
erobj
ect
ives

Att
heendoft
het
opi
c,t
hel
ear
ner
sshoul
dbeabl
eto:
Byt
heendoft
het
opi
c,l
ear
ner
sshoul
dbeabl
eto:
•def
inet
ermsusedi
nmanuf
act
uri
ngaccount
s;
•cl
assi
fymanuf
act
uri
ngcost
s;
•pr
epar
emanuf
act
uri
ngaccount
s;
•dr
awupi
ncomest
atement
sofamanuf
act
uri
ng
busi
ness;
and
•dr
aftast
atementoff
inanci
alposi
ti
onofamanuf
act
uri
ng
busi
nesses.
I
ntr
oduct
ion

I
nthi
stopi
cwi
l
ldi
scusst
hepr
epar
ati
onofFi
nanci
alSt
atement
sofmanuf
act
uri
ng
busi
ness,whi
chbuyr
awmat
eri
als,conv
ertt
hem i
ntof
ini
shedgoodsandt
hensel
l
.a
manuf
act
uri
ng
accounti
spr
epar
edi
naddi
ti
ont
othet
radi
ngandpr
ofi
tandl
ossaccount
s.I
tis
pr
oduced
f
ori
nter
nal
useonl
y.Peopl
eot
hert
hant
heowner
sandmanager
soft
heor
gani
sat
ion
r
arel
yseeamanuf
act
uri
ngaccount
.
Amanuf
act
uri
ngbusi
nessi
srequi
redt
opr
epar
eamanuf
act
uri
ngaccounti
naddi
ti
on
t
otheSt
atementofcompr
ehensi
vei
ncomeandt
heSt
atementoff
inanci
alposi
ti
on.
Thepur
poseofmanuf
act
uri
ngaccounti
stof
indouthowmuchi
tcost
sthecompany
t
opr
oducef
ini
shedpr
oduct
s(i
.e.t
odet
ermi
nef
act
orycost
.)
.Thef
act
orycosti
sthen
t
ransf
err
edt
othet
radi
ngaccountt
otaket
hepl
aceofpur
chases.Manuf
act
uri
ngCost
i
smadeupoff
ourel
ement
s.
(
1)Di
rectmat
eri
al
(
2)Di
rectl
abour
(
3)Di
rectexpenses
(
4)Fact
oryov
erheads

Di
rectmat
eri
als
Thesear
erawmat
eri
als,
whi
chbecomespar
toff
ini
shedgoods.

Di
rectl
abour
Thi
sref
erst
owagesofempl
oyeeswhophy
sical
l
ywor
kont
hepr
oduct
soroper
ate
machi
nest
hatar
eusedt
opr
oducet
hef
ini
shedpr
oduct
s.Theseexcl
udewagespai
d
t
othef
oreman,
product
ionmanager
/cont
rol
l
er/
super
visor
,andengi
neer
s,dr
aftman,
et
c.
Di
rectexpenses
Thesear
eexpensest
hatar
erel
ateddi
rect
lyt
omanuf
act
uri
nggoods.Themost
commonexampl
esar
eroy
alt
yandpat
ent
s.TheTot
alf
ordi
rectmat
eri
al,Di
rect
LabourandDi
rectexpensesi
spr
imecost
.
Fact
oryov
erheads
Thesear
eexpenseswhi
char
eincur
redi
nthef
act
oryf
ort
hepr
oduct
ionofgoods.
Theyar
enotdi
rect
lyr
elat
edt
othepr
oduct
ionofgoodsbutar
enecessar
yint
he
pr
oduct
ion ofgoods f
orexampl
e,f
act
ory super
visor
’s sal
ari
es,f
act
ory power
,
depr
eci
ati
onofpl
antandmachi
ner
yandot
her
s.
‘
I
ndi
rectmanuf
act
uri
ngcost
s’ar
eal
lthosecost
swhi
choccuri
nthef
act
oryorot
her
pl
acewher
e
pr
oduct
ioni
sbei
ngdone,butwhi
chcannoteasi
l
ybet
racedt
othei
temsbei
ng
manuf
act
ured.
Exampl
esar
e:
l
wagesofcl
eaner
s
l
wagesofcr
anedr
iver
s
l
rentofaf
act
ory
l
depr
eci
ati
onofpl
antandmachi
ner
y
l
cost
sofoper
ati
ngf
orkl
i
ftt
rucks
l
fact
orypower
l
fact
oryl
i
ght
ing
I
fabusi
nessi
susi
ngmanuf
act
uri
ngaccount
s,i
nst
eadofaf
igur
eforpur
chases(
of
f
ini
shed
goods)t
het
radi
ngaccountwi
l
lcont
aint
hecostofmanuf
act
uri
ngt
hegoodst
hat
wer
emanuf
act
ured
dur
ingt
heper
iod.Themanuf
act
uri
ngaccounti
susedt
ocal
cul
ateandshowt
hecost
of
manuf
act
uri
ngt
hosegoods.Thef
igur
eitpr
oducest
hati
susedi
nthet
radi
ngaccount
i
sknown
ast
hepr
oduct
ioncost
.

For
matofamanuf
act
uri
ngaccount
.
Di
rectMat
eri
als
$
Openi
ngi
nvent
oryofr
awmat
eri
al xxx
AddPur
chases–RawMat
eri
als xxx
Addcar
ri
agei
nwar
dspur
chases xxx
Lesspur
chasesr
etur
ns xxx
xxx
LessCl
osi
ngSt
ock (
xxx)
RawMat
eri
alConsumed xxx
AddDi
rect(
manuf
act
uri
ng)wages xxx
AddDi
rectexpenses,
ifany xxx
Pr
imeCost xxx
AddFact
oryOv
erheads
I
ndi
rectmat
eri
al xxx
Pl
ant&Machi
ner
yInsur
ance xxx
Pl
ant&Machi
ner
yRepai
rs xxx
Rent&Rat
es xxx
Fact
oryheatandl
i
ght xxx
AddOpeni
ngWor
kInPr
ogr
ess (
xxx)
xxx
LessCl
osi
ngWor
kInPr
ogr
ess (
xxx)
Fact
orycostofpr
oduct
ion xxx
Wor
kInpr
ogr
essi
spar
tl
yfi
nishedgoodsatt
hebegi
nni
ngorendoft
hef
inanci
aly
ear
ofabusi
ness.
For
matoft
radi
ngaccounti
sli
ket
hef
oll
owi
ng:
St
atementofcompr
ehensi
vei
ncome
$ $
Rev
enue xxx
LessCostofsal
es
Openi
ngi
nvent
oryoff
ini
shedgoods xxx
Addf
act
orycostofpr
oduct
ion(
from abov
e) xxx
Addpur
chasesofgoodsf
rom out
sidesuppl
i
ers(
ifany
) xxx
xxx
LessCl
osi
ngi
nvent
oryofFi
nishedgoods xxx
Costofsal
es xxx
Gr
ossPr
ofi
t xxx

St
atementoff
inanci
alposi
ti
on
Manuf
act
uri
ngbusi
nessesal
sopr
epar
east
atementoff
inanci
alposi
ti
ont
oshow
asset
s,
l
i
abi
l
iti
es,andt
hecapi
taloft
hebusi
ness.Thest
atementoff
inanci
alposi
ti
oni
s
pr
epar
ed
i
nthesamewayasoft
het
radi
ngbusi
ness.Thedi
ff
erencei
sonl
yont
hecur
rent
asset
s
sect
ionwher
ethemanuf
act
uri
ngbusi
nesseshav
ethr
eei
nvent
ori
es:r
aw mat
eri
als,
wor
kin
pr
ogr
ess,andf
ini
shedgoods.Al
linv
ent
ori
esmustbedi
scl
osedont
hef
aceoft
he
st
atement
off
inanci
alposi
ti
on.
Str
uctureofthest
atementoff
inanci
alposi
ti
onext
ract
sshowi
ngt
he
curr
ent
assetssect
ion.
Cur
rentasset
s
I
nvent
oryofr
awmat
eri
als
Cl
osi
ngi
nvent
oryofwor
kinpr
ogr
ess
I
nvent
oryoff
ini
shedgoods

Oncet
hef
act
orycostofgoodshasbeendet
ermi
nedi
nthemanuf
act
uri
ngaccount
s,
i
tist
hent
ransf
err
edt
othet
radi
ngaccounti
npl
aceofpur
chases.Howev
er,some
f
ir
msdonotpr
oduceenoughpr
oduct
sforsal
e,andasmucht
heypur
chasesome
f
ini
shedgoodst
osuppl
ementt
hei
rrequi
rement
s.
Appor
ti
onmentofexpenses
Thi
sref
erst
otheshar
ingofexpenses.Al
lfact
orypor
ti
onsonsuchexpensesar
e
ent
eredi
nto
t
he manuf
act
uri
ng account
.Expenses f
ort
he of
fi
ce ar
e ent
ered i
nthe i
ncome
st
atement
.
Whent
her
ear
epr
epay
ment
sandaccr
ual
sonsuchexpenses,adj
ust
ment
sshoul
d
f
ir
stbe
madebef
oreappor
ti
onment
.Thi
sref
erst
otheshar
ing ofexpenses.Al
lfact
ory
por
ti
onsonsuchexpensesar
eent
eredi
ntot
hemanuf
act
uri
ngaccount
.Expensesf
or
t
heof
fi
cear
eent
eredi
nthei
ncomest
atement
.Whent
her
ear
epr
epay
ment
sand
accr
ual
sonsuchexpenses,
adj
ust
ment
sshoul
dfi
rstbemadebef
oreappor
ti
onment
.
NB Car
e shoul
d be t
aken when a costi
sto be appor
ti
oned bet
ween t
he
manuf
act
uri
ngandpr
ofi
tandl
ossaccount
srequi
ri
ngadj
ust
ment
sforaccr
ual
sand
pr
epay
ment
s.I
n such a case t
he adj
ust
ment
s shoul
d be done f
ir
stbef
ore
appor
ti
onment
.