Manufacturing Accounts - Principles Of Accounting
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Manufacturing Accounts
The businesses which produce and sell the items prepare the following accounts at the end of its accounting year:a. The Manufacturing account (to calculate the total cost of production) b. The Trading and profit & loss account (to find out the net profit or loss) c. The balance sheet.(to show the financial position of the business) The total cost of production = Prime cost + Factory overhead The Prime cost = Direct material + Direct labour + Direct expenses Direct material cost = Opening stock of raw materials + purchase of raw materials + Carriage inwards – returns outwards – closing stock of raw materials. Factory overhead expenses = All expenses related to the factory (indirect expenses) In a manufacturing concern, usually there are three kinds of stocks: Stock of Raw materials (the materials which are mainly used for production of the item) Stock of Work in progress (the materials on which some work process have been
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Stock of Finished goods (The materials on which all the production processes are completed and for sale to the customers)
ready
In the examination questions, the stock figures will be given separately.
The format of a manufacturing account
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Manufacturing Accounts - Principles Of Accounting
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/ http://www.principlesofaccounting2.com/ Format of trading account of a manufacturing concern
The profit & loss account and the balance sheet preparations will be the same as that of a sole trader’s. So the students have to follow the previous method for the preparation of these.
Fixed expenses and Variable expenses Some expenses will remain constant whether the level of activity increases or falls. These expenses are called fixed expenses E.g. rent of building The expenses which change with changes in activity are called variable expenses E.g: cost of materials. Key points:
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Carriage on raw materials means carriage inwards and it is a part of prime cost. Carriage outwards is shown in the profit & loss account as an expense.
Royalties paid is to be treated as direct expense. Depreciation on Plant and Machinery or any other factory asset is to be treated as factory overhead
expense. Stocks of raw materials and work-in-progress are taken in the manufacturing account and stock of
finished goods is taken in the trading account. Stocks at the end of the year (raw materials, work-in-progress and finished goods) are shown in the
balance sheet as current assets. Owner’s raw materials drawings are shown in the manufacturing account while calculating the prime
cost. Finished goods drawings are shown in the trading account while calculating the cost of goods sold.
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The purchase of finished goods is added with cost of production in the trading account. The depreciation of any asset used in the office should be shown as an expense in the
profit & loss account. Cost of ready made items bought for the production of items manufactured should be treated as
direct expense. Unit cost of production = Total cost of production
No of units produced MCQ.Q 1. The purpose of preparing the manufacturing account is to calculate:A. Gross profit B. Manufacturing profit C.Net profit in a manufacturing account?
D. Cost of productionQ 2.
A Factory power
B. Purchase of raw materials
C Carriage inwards on raw materials Q 3.
D. All of these
Prime cost includes
A. Factory direct wages
B. Factory indirect wages
C. Finished goods Q 4.
What does production cost include
D. Work in progress
The costs of a manufacturing firm are as follows: $
Raw materials purchasedDirect
5000
LabourCost of Raw material consumedFactory overheads
3000
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What was the prime cost? A. $10000
Q 5.
B. $15000
C. $12000
Prime cost In a Manufacturing account is equal to
A. All factory indirect costs
B. All factory costs
B. Direct factory costs only
D. Direct materials plus direct expenses
Q 6.
Carriage outward in manufacturing concern is included in which heading?
A. Direct expenses
B. Factory overhead expenses
C. Administrative expenses Q 7.
D. Selling and distribution expenses
Which of the following is not included in the Manufacturing account?
A. Foreman’s wages
D. $17000
B. Depreciation on factory machinery
C. Indirect wages D. Depreciation on office equipmentQ 8. shows the cost incurred for the production of an item.Direct materials Direct wages $ 700 Manufacturing expenses
$ 100
Factory overhead expenses
$ 300
The following table $ 1200
What is the amount of prime cost? A. $ 2300 Q 9.
B. $ 2 000
C. $ 1 700
D. $ 3 000
How is the production cost calculated in a manufacturing account?
A. Prime cost + administrative expenses B. Prime cost + administrative expenses C. Prime cost + Factory overhead expenses D. Raw materials + direct labour. Q 10.
Which on of the following is not factory overhead expense?
http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ A. Wages of cleaners
B. Carriage on raw materials
C. Factory lighting
D. Factory power
Q 11.
Which are the stock figures shown in the manufacturing account?
A. Finished goods and raw materials
B. Finished goods only
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Assignment questions Q1) Zena owns a small manufacturing business. The following balances were taken from her books on 30 June 2001: $ Stocks 1 July
2000
Raw materials
23 300
Finished goods
28 500
Stocks 30 June 2001:
http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Raw materials
25 700
Finished goods
21 500
Purchases of raw materials
265 500
Carriage on sales
3 300
Carriage on raw materials
3 100
Selling expenses
3 500
Bad debts
500
Factory overheads
30 300
Depreciation of factory equipment
14 000
Factory direct expenses
4 000
Factory wages
100 000
Select the appropriate balances and prepare the Manufacturing account for the year Ended 30 June 2001. Show clearly within the account: cost of raw materials consumed, prime cost, cost of production
/ http://www.principlesofaccounting2.com/ Q2) Justine is a manufacturer of beauty products. The following balances were extracted from her books on 31 December 2001 after the Manufacturing Account had been prepared. $
$
Stocks Raw Materials (31 December 2001) Work in Progress (31 December 2001) Finished Products (1 January 2001) Cost of products manufactured
3 530 1 450 11 200 103 780
Sales of finished goods
137 560
Carriage on sales
1 230
Advertising
3 410
Sales staff’s commission Office expenses Bank charges Plant and machinery
8 970 11 860 60 51 410
Provision for depreciation on Plant and Machinery Trade debtors
9 030 13 600
Trade creditors
5 210
Provision for doubtful debts (1 January 2001) Bad debts Cash in hand
310 460 90
Bank overdraft
1 740
Capital Drawings
60 450 3 250 214 300
214 300
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1. Stock of finished products at 31 December 2001 was valued at $10 640.
2. During the year, Justine took finished products valued at $600 from the current year’s production for personal use. No entries had been made in the books.
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3. Sales staff’s commission outstanding amounted to $390. 4. The provision for doubtful debts is to be adjusted to 5% of debtors. 5. $50 for bank charges had not been recorded in the books.
(a) Prepare Justine’s Trading and Profit and Loss Accounts for the year ended 31 December 2001. (b) Prepare the Balance Sheet as at 31 December 2001.
Q:3 Allocate the following costs to Manufacturing account and Income statement
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a)
b)
Manufacturing account
Insurance of factory building Depreciation of office photocopier
c)
d) e)
Revenue commission Raw material purchased
g)
f) Advertising Manufacturing Electricity
h) i)
Carriage on Revenue Carriage on raw materials j)
Bad debts
Q:4 Farhad owns a small workshop and he makes iron gates. The following information was taken from the books on 31 December 2009. 1 January 2010
31 December 2010
$
$
Inventories – Raw materials
22,400
20,700
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14,400
Purchases of raw materials
20,000
172,100
Carriage on Revenue
4,200
Carriage on raw materials
3,200
Workshop wages
75,600
Sales staff wages
42,100
Raw materials returned to suppliers
700
Workshop light and heat
9,200
Workshop general expenses
16,900
Depreciation of workshop equipment
9,600
Revenues from finished goods
366,000
REQUIRED: a) Select the appropriate balances and prepare the Manufacturing Account for the year ended 31 December 2010. b)
Prepare the Income statement for the year ended 31 December 2010.
Q:5 The following information for the year ended 31 December 2008 is extracted from the books of Sammad, the owner of a small fruit juice-bottling factory: 1 January 2010
$
31 December 201
$
Inventories – Ingredients (Bulk Orange Juice)
950
1,070
http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Empty Bottles and Labels Bottled Fruit Juice
260
3,900
230
4,300
Purchases of:
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Ingredients (Bulk Orange Juice)
13,400
Bottles and Labels
1,270
Revenue of Bottled Fruit Juice
71,400
Factory Wages
23,430
Supervisor’s Salary
5,200
Factory indirect expenses
2,690
Depreciation of Plant and Machinery
1,700
You are required to prepare 1. The Manufacturing Account showing clearly cost of raw materials consumed, prime cost and cost of production.
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Q:6 The following information for the year ended 30 September 2003 was extracted from the books of Preserves Ltd, manufacturers of jam and fruit juices. 1 October 2002 $
30 September 2003 $
Inventories: – raw materials
6 800
6 400
– jars, lids and labels
10 400
10 000
– finished goods
21 000
21 600
Purchases: – raw materials
70 600
– jars, lids and labels
17 000
Revenues
365 000
Factory wages
36 800
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29 200
Factory machines repairs
11 400
Carriage on raw materials
11 000
Depreciation of plant and machinery
12 600
REQUIRED: (a) Prepare, in good style, the Manufacturing Account for the year ended 30 September 2003. (b) Prepare the Income statement for the year ended 30 September 2003. Incoming search terms:
manufacturing account manufacturing accounts format for manufacturing account format of a manufacturing account manufacturing profit and loss account manufatrring accoint format opening stock of raw materials in p&l account profit and loss manufacturing account stock material loss account trading account format for manufacturer
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