Higher Accounting - Manufacturing Accounts Theory

When is a manufacturing account created?

• Before the income statement

• After the income statement

• As part of the income statement

Which is NOT an example of a manufacturing company?

• Washing machines

• Fridges

• Cars

• IT software

Which of the following elements of a manufacturing account matches the definition below:

The raw materials actually used to manufacture the product (e.g. cloth used to produce shirts, flour used to produce bread)

• Direct materials

• Direct wages

• Indirect materials

• Direct expenses

Which of the following elements of a manufacturing account matches the definition below:

The wages of those workers actually engaged in the manufacturing process (e.g. wages of a sewing machine operator)

• Direct materials

• Direct wages

• Indirect wages

• Profit on manufacture

Which of the following elements of a manufacturing account matches the definition below:

Expenses which can be traced directly to the units manufactured. This can include royalties and hire of specialist equipment.

• Direct wages

• Direct materials

• Direct expenses

• Indirect materials

Which of the following elements of a manufacturing account matches the definition below:

Fees that must be paid to other persons for the right to produce their products or to use their processes.

• Direct expenses

• Royalties

• Hire of specialist equipment

• Prime cost

How is Prime Cost calculated on a manufacturing account?

• Prime Cost = Direct Materials + Direct Wages + Direct Expenses

• Prime Cost = Direct Materials - Direct Wages - Direct Expenses

• Prime Cost = Direct Materials x Direct Wages

• Prime Cost = Direct Materials / Direct Expenses

Which of the following are examples of indirect costs? (There are THREE correct answers to select!)

• Factory heat and light

• Factory manager salary

• Factory rent and rates

• Machine operator wages

What is the general rule for dealing with Work-in-Progress on a manufacturing account?

• Add opening WIP and closing WIP

• Subtract opening WIP and add closing WIP

• Add opening WIP and subtract closing WIP

• Subtract opening WIP and closing WIP

Manufacturing firms like to compare their cost of manufacture with the wholesale cost of their output. Why do they do this?

• To see whether it has been more or less profitable to manufacture the products rather than purchase them

• To report to managers on the quality of their products

• To apportion costs to different areas of the business

• To investigate how many units are required to breakeven