You are on page 1of 20

Financial Accounting 2

Manufacturing
Accounts

Learning Outcomes
• To explain to calculate prime cost &
production cost of goods manufactured.
• To draw up a manufacturing account and
income statement.
• To adjust the manufacturing account in
respect of work-in-progress.

BM020-3-1 FA2

Manufacturing Accounts

Slide 1 of 20

• The manufacturing accounts is used to calculate & show the cost of manufacturing those goods.Manufacturing Accounts • Used for businesses which are manufacturers. • A manufacturing account is prepared in addition to the income statement. • It is product for internal use only. • The figure it produces that is used in the Trading account is known as the production cost. BM020-3-1 FA2 Manufacturing Accounts Slide 3 of 20 .

Divisions of costs BM020-3-1 FA2 Manufacturing Accounts .

Direct and indirect costs The sum of all the direct costs is known as the prime cost. A cost that cannot be easily traced to the item being manufactured is known as an indirect cost. BM020-3-1 FA2 Manufacturing Accounts .

Manufacturing Accounts .Indirect manufacturing costs Examples are: • • • • • • • BM020-3-1 FA2 Wages of cleaners Wages of crane drivers Rent of a factory Deprecation of plant and machinery Costs of operating forklift trucks Factory power Factory lighting.

It contains costs of: • • • • BM020-3-1 FA2 Direct materials Direct labour Direct expenses Indirect manufacturing costs. Manufacturing Accounts .Format of manufacturing account This is debited with the production cost of goods completed during the accounting period.

Format of trading account This account includes: • Production cost brought down from the manufacturing account • Opening and closing inventory of finished goods • Sales. BM020-3-1 FA2 Manufacturing Accounts .

Manufacturing Accounts BM020-3-1 FA2 Manufacturing Accounts Slide 1 of 13 .

Manufacturing Accounts Example 1. BM020-3-1 FA2 Manufacturing Accounts Slide 10 of 20 .

Manufacturing Accounts BM020-3-1 FA2 Manufacturing Accounts Slide 11 of 20 .

Manufacturing Accounts BM020-3-1 FA2 Manufacturing Accounts Slide 12 of 20 .

Format of profit and loss account This includes: • Gross profit brought down from the trading account • All administration expenses • All selling and distribution expenses • All financial charges. BM020-3-1 FA2 Manufacturing Accounts .

Manufacturing Accounts Example 2 BM020-3-1 FA2 Manufacturing Accounts Slide 14 of 20 .

Manufacturing Accounts BM020-3-1 FA2 Manufacturing Accounts Slide 15 of 20 .

BM020-3-1 FA2 Manufacturing Accounts Slide 16 of 20 .

Manufacturing Accounts BM020-3-1 FA2 Manufacturing Accounts Slide 17 of 20 .

Manufacturing Accounts BM020-3-1 FA2 Manufacturing Accounts Slide 18 of 20 .

Question and Answer Session Q&A BM020-3-1 FA2 Manufacturing Accounts Slide 19 of 20 .

What we will cover next  Ratio Analysis and Interpretation BM020-3-1 FA2 Manufacturing Accounts Slide 20 of 20 .