Manufacturing Account. 16th May_2009

PRINCIPLES OF ACCOUNTSMANUFACTURING ACCOUNTS

PRESENTED BY:MFUTA FM

KABUNDI HIGH SCHOOL

MANUFACTURING ACCOUNTS

• The manufacturer is involved or engaged in business of purchasing raw-materials and converting them into finished products which are later sold.

MANUFACTURING ACCOUNTS

• The manufacturer is specially concerned with the costs of manufacturing incurred in the manufacturing process

MANUFACTURING ACCOUNTS

• Therefore, the manufacturing account is concerned with ascertaining the cost of production

MANUFACTURING ACCOUNTS

• Thus, for these firms, a manufacturing account is prepared in addition to the trading and profit and loss account

MANUFACTURING ACCOUNTS

• Therefore, a Book-keeper is expected to have three stocks as opening stock. These are:

a. Stock of Raw-materials

b. Stock of work-in-progress

c. Stock of finished goods

MANUFACTURING ACCOUNTS

• NB. These three stocks will appear in the Balance Sheet as assets of the business

• The preparation of this account requires the recognition of two types of factory costs. They are:

1) DIRECT COSTS

• These are the first costs to be incurred since they are directly involved in the production of goods e.g. raw materials, factory wages, carriage on raw materials, direct expenses etc

2) INDIRECT COSTS

• These are the costs which are not directly embodied in the production but are necessary to the production process e.g. Factory rent, Factory rates, Factory lighting and heating, Factory Wages, Factory fuel and power etc

MANUFACTURING ACCOUNTS

• The manufacturing account, therefore, is divided into two sections:

• The first one is the Prime Cost and the second one is the Cost of goods manufactured or produced commonly known as the Cost of Production

EXAMPLE 1

• From the following particulars extracted from the books of W. Kabanda, a manufacturer of Electronic goods, prepare the manufacturing account for the year ended 31th December, 2008.

EXAMPLE 1

1 Jan 2008 stock of raw materials 80 000

31 Dec 2008 stock of raw materials 105 000

1 Jan 2008 work-in-progress 35 000

31 Dec 2008 work-in-progress 42 000

Wages: Direct 396 000

Indirect 255 000

Purchases of raw materials 870 000

EXAMPLE 1

Fuel and power 99 000

Direct expenses 14 000

Lubricants 30 000

Carriage inwards on raw materials 20 000

Factory rent 72 000

Depreciation of factory plant and

Machinery 42 000

EXAMPLE 1

Insurance of factory building and

Plant 150 000

General factory expenses 33 000

Factory internal transport

Expenses 18 000

SOLUTION

W. KABANDA

MANUFACTURING ACCOUNTS

AS AT 31 DECEMBER, 2008

K K K

Opening stock of R. M.

Add: Purchases of R.M.

Add: Carriage on R.M.

Total cost of R Materials

80 000

870000

950000

20000

970000

SOLUTION

Less: Closing stock of R. Materials

Cost of RM Consumed

Add: Direct expenses

Direct Wages

Direct expenses

Total D. expenses

PRIME COST

396000

14000

105000

865000

410000

1275000

SOLUTION

Add: Indirect expenses

Fuel and Power

Indirect expenses

Lubricants

Rent

Depreciation of plant

Internal transport

Insurance

General Factory Exp.

Total Overhead Exp.

99000

255000

30000

72000

42000

18000

150000

33000

699000

SOLUTION

Add: work-in-progress 1/01/08

Less: work-in-progress 31/12/08

Cost of PRODUCTION

1974000

35000

2009000

42000

1967000

EXERCISE

1. The following figures relating to the year 2008 have been taken from the books of Chibwe Jackson, a manufacturer of mealie meal.

Stocks at 1/01/08

Raw materials 285 000

Work-in-progress 243 100

Purchases of R Materials 467 000

EXERCISE

Carriage on Raw Materials 6 400

Direct factory wages 396 000

Factory power, light & heating 163 000

Depreciation of plant & machine 38 000

Warehouse charges & expenses 45 000

Royalties 150 000

General Factory expenses 38 000

EXERCISE

Stocks at 31/12/08

Raw Materials 268 000

Work-in-progress 274 000

REQUIRED

Prepare the manufacturing account as at

31/12/08