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Manufacturing accounts by inqilab patel

In order to ascertain the cost of producing the goods a manufacturing account is prepared. This account is also normally prepared at the end of the accounting period. Both direct and indirect expenses associated with the manufacturing process debited to the manufacturing account. The balance of this account representing cost of the goods produced is then transferred to the trading account.

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Manufacturing accounts by inqilab patel

  1. 1. ManufacturingAccountsBY INQILAB PATELMAIN CAMPUS
  2. 2. Manufacturing Business MANY BUSINESS ENTITIES ENGAGE IN MANUFACTURING ACTIVITIES AND THIS INVOLVES: The purchasing of raw materials Incurring labor and other cost IN CONVERTING THE RAW MATERIALS INTO FINISHED GOODS.
  3. 3. Manufacturing Business In order to ascertain the cost of producing the goods a manufacturing account is prepared. This account is also normally prepared at the end of the accounting period. Both direct and indirect expenses associated with the manufacturing process debited to the manufacturing account. The balance of this account representing cost of the goods produced is then transferred to the trading account.
  4. 4. Manufacturing BusinessThe order of presentation of the final accounts isas under: (a) Manufacturing Account Part (b) Trading Account Part (c) Profit and Loss Account Part (d) Balance Sheet Part.
  5. 5. Division of CostsDirect MaterialsDirect Labour Prime Cost ProductionDirect Expenses Cost Plus Factory Overhead Total Cost Plus Administrative Expenses Selling & Distribution Expenses Financial Charges
  6. 6. Production CostPrime Cost xxxxxAdd: Factory Overhead xxxxxProduction cost xxxxx(Production Cost = Prime cost (Direct Cost)+ Factory overhead expenses (Indirect cost)
  7. 7. Prime CostDirect Material xxxxxAdd: Direct Labour xxxxx Direct Expenses xxxxxPrime Cost xxxxx(Prime Cost = Direct Material+ Direct Labour + Direct Expenses)
  8. 8. 1. Direct materials • Costs of the materials used during the period. • Include Opening Inventory of Raw Materials • + Purchase price of the raw materials and the acquisition costs related to the purchase. • - Closing Inventory of Raw Materials • Examples: Opening Inventory of Raw Materials xxxxx Add: Purchase of raw materials xxxxx Carriage inwards / freight charges xxxxx Available for use xxxxx Less: Closing Inventory of Raw Materials (xxxx) Direct Material used xxxxx
  9. 9. 2. Direct labour • Wages paid to the people who are directly involved in the manufacturing process. • Example: Direct labour, Direct wages, Factory wages, Production wages, Manufacturing wages • Wages of a machine operator making a particular item3. Direct Expenses • They refer to the expenses paid according to each unit of production. • Examples: Royalties
  10. 10. Prime CostDirect Material xxxxxAdd: Direct Labour xxxxx Direct Expenses xxxxxPrime Cost xxxxx
  11. 11. Factory Overhead(Indirect Manufacturing Costs)Factory Overhead or Indirect Manufacturing Costs are allthose costs which occur in the factory or other placewhere production is being done, but which cannot betraced to the items being manufactured.Example:Wages of CleanerWages of Crane operatorWages of SupervisorsRent and Rates of FactoryDepreciation of Plant and MachineryFactory PowerFactory Lighting
  12. 12. Factory Overhead(Indirect Manufacturing Costs) Factory Overhead or Indirect Manufacturing Costs are all those costs which occur in the factory or other place where production is being done, but which cannot be traced to the items being manufactured.
  13. 13. Production CostDirect MaterialsDirect Labour PrimeDirect Expenses Cost Production Plus Cost Factory Overhead
  14. 14. Work in Process It refers to the semi-finished goods, which should be included in the cost of goods manufactured. The opening inventory of the Work In Process should be added And The closing inventory of the Work In Process should be subtractedDirect MaterialsDirect Labour PrimeDirect Expenses Cost Production Total Cost of Goods Plus Cost Manufactured Factory Overhead Plus Work in Process (opening) Less Work in Process (Closing)
  15. 15. (a) Manufacturing Account
  16. 16. (b) Trading Account This includes:  Production cost brought down from Manufacturing Account  Opening and Closing Stock of Finished Goods  Sales
  17. 17. (c) Profit & Loss Account This includes:  Gross Profit brought down from Trading Account  All administrative expenses  All selling and distribution Expenses  All Financial Charges
  18. 18. (d) Balance Sheet This includes:  All Assets (Current & Fixed)  All Liabilities (Current & Long-term)  All Capital & Drawing and Net Profit or Loss
  19. 19. (d) Balance Sheet
  20. 20. Thank YouMAIN CAMPUSINQILAB PATELinqilab@ruknuddin.com

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