F5 POA Manufacturing Accounts Lesson

F5 POA Manufacturing Accounts

by Karla Williamson

​Manufacturing Accounts

​5th edition

Chapter 36

page 408

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​

​6th edition

​Chapter 37

​page 360

​Objectives

• ​Distinguish between direct and indirect costs - elements of cost: direct materials, direct labour and factory overheads. 

• Prepare manufacturing account showing various costs

• Calculate unit cost of items produced

• Prepare final accounts for a  manufacturing concern

​Introduction

​The accounts we have considered so far are for retail type businesses. Retailers buy and sell completed products.

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Manufacturing businesses are organizations that are engaged in the purchase of raw materials, the conversion of these raw materials into finished goods and the selling of these finished goods to make a profit.

​Cost of Production

​The cost to manufacture the items is extremely important and will form a significant part of your study in this topic.

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​Let's look at types of costs.

​A Manufacturing Account

​A simple manufacturing account is split into two sections:

Prime Cost - this is the total of all direct costs incurred when producing the products.

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​Factory Overheads - the indirect costs incurred in the production of the products.

​A Manufacturing Account

​Within the manufacturing account, these two sections are combined together to calculate the cost of production:

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​Cost of Production = Prime Cost + Factory Overheads

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​All other non-production cost, such as administration costs, are recorded within the income statement.

​Direct and Indirect Costs

• ​Direct costs are costs that are attributable to a particular product, for example, direct materials and direct labour.

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• ​Indirect costs are costs that cannot be attributed to a particular product for example indirect labour such as the wages of supervisory staff

​Direct and Indirect Costs

​Reading from text

​

​5th edition - page 409

​6th edition - page 360

Preparing the Manufacturing Account​

Format on page 514, 5th edition ​& page 485, 6th edition

​5:53 - 10:22

​Work in Progress

​Work in Progress (WIP)

​Manufacturing is a continuous process and so not all goods are complete or finished at the end of financial period. These partly finished goods are referred to as inventory of work in progress.

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​The movement in work in progress over the financial period is added to the prime cost and factory overheads within the manufacturing account to achieve the cost of production.

​Work in Progress (WIP)

​The total cost of production in a manufacturing account is therefore made up of

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​Prime cost + Factory overheads + Opening WIP - Closing WIP

​More practice

Do Question 6 on Worksheet posted on Google Classroom.

Production Cost

Per Unit​

The Income Statement ​

The Trading and Profit and Loss Account​

​The Trading Account

​At the end of the production process, the cost of production is transferred from the manufacturing account to the trading account.

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​The cost of production figure replaces the purchases of goods for resale within the calculation of cost of goods sold.

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​The completed goods are referred to as finished goods. The trading account is concerned with comparing the revenue/sales from selling finished goods with the cost of finished goods sold.

​The Profit and Loss Account

10:24 - 12:01

The Statement of Financial Position​

The Balance Sheet​

​Class work/Homework

5th edition

pages 419 - 421

Ex. 36.1 - 36.6X

​

​6th edition

​pages 370 - 372

​Ex. 37.1 - 37.6X

​Past Paper Questions: May-June 2011-2019

• May/June 2018 Question 5

  May/June 2016 Question 4

  May/June 2014 Question 5

  May/June 2013 Question 4

  May/June 2012 Question 6

  May/June 2011 Question 5

F5 POA Manufacturing Accounts