MANUFACTURING ACCOUNT

LEARNING OBJECTIVES

◦ Student defines Manufacturing account

◦ Student distinguish between direct and indirect cost
◦ Student understands direct material, direct labour and other direct expenses
◦ Student understands Prime cost and calculates Prime cost
◦ Student understands and adjusts work in progress.
◦ Student understands the practical use of calculating cost of production.
Manufacturing Account

A Manufacturing account is part of the

annual financial statements and used
to calculate cost of goods produced.
 Elements of cost

◦ Direct Material
◦ Direct Labour
◦ Direct Expenses
◦ Factory overheads/ Indirect Expenses
Direct Material
◦ The raw material needed to prepare
the finished product.

❖ Furniture – wood

❖Baker – Flour

❖Apparel – Cloth

❖Car production - Steel

Direct Labour
◦ Cost of wages of the people who are
employed in the factory making
goods.

◦ Carpenters
◦ Bakers
◦ Machine operators
 Direct Expenses
◦ Any other expenses which a manufacturer can directly link.

◦ Royalty
 Factory Overheads
◦ These are indirect factory Expenses.

◦ Factory Rent and rates

◦ Heat and light

◦ Machinery repairs

◦ Indirect wages / supervisors' wages

Difference between direct and Indirect
expenses
Direct Expenses Indirect expenses

❖ Expenses which are directly linked ◦ Expenses which cannot be directly

with production. linked with production

▪ Direct Material ▪ Indirect Labour

▪ Direct Labour ▪ Indirect Expenses
▪ Direct Expenses
 Difference between Prime cost and
Total cost
Prime cost Cost of production

❖ The total of direct expenses in the ◦ Cost of production is the total cost of
business. the business.

❖Prime cost = direct material + Direct ◦ Total cost = Prime cost + Indirect cost -
Labour + Other direct cost /+ work – in – progress adjustment
 Prime cost
◦ It is the total of the direct Material, Direct Labour , Direct Expenses.

◦ Cost of essential necessary for production.

◦ Prime cost = Direct Material + Direct Labour + Direct Expenses

 Types of Inventory

▪ Raw material. - wood

▪ Work – in- progress - partly completed furniture

▪ Finished goods - Furniture

 Work – in- progress
◦ Work –in- progress is the goods which are partly completed.
QUESTIONS
???
ACTIVITY
◦ Pg. : no 292 – Test yourself 20.1

◦ Pg.: no 294 - Test yourself 20.2

◦ Pg.: no 295 - Test yourself 20.3

◦ Pg.: no 296 - Test yourself 20.4

THANK YOU
FOR YOUR
ATTENTION