manufacturing akaun

8/8/2019 Manufacturing Akaun

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Chapter 37

MANUFACTURING ACCOUNTS


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MANUFACTURING

1. Manufacturing account is prepared inaddition to the trading and profit and loss

account.

2. Its is produced for internal use only .

3. Only owner and managers usually see themanufacturing account .


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D IVISIONS OF COST

D irect materialsD irect labour Prime costD irect expenses Production cost

Plus

Indirect manufacturing costs Total cost Plus

Administration expensesSelling and distribution expensesFinancial charges


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MANUFACTURING

1. The prime cost items and other productioncost are shown in the manufacturing account

2. The administration expenses, selling anddistribution expenses and financial chargesappear in the profit and loss account .


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D IRECT COST

1. D irect cost means it has been possible totrace the costs to an item being manufactured

Eg: For a construction company;i. Concreteii. Forklift truck iii. operators wagesiv. Steel girdersv.

windows


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IND IRECT COST/manufacturing cost

1. Indirect manufacturing cost are all thosecosts which occur in the factory or other placeswhere production is being done; but cannoteasily be traced to the item being manufactured

Eg . Indirect manufacturing cost

i. W

ages of cleanersii. R ent of a factoryiii. D epreciation of plant and machinery

iv. Factory power


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AD MINISTRATION EXPENSES

a. Consists of such items as:managers salaries, legal andaccountancy charges, thedepreciation of accountingmachinery and secretarial salaries.


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SELLING AN D D ISTRIBUTION EXPENSES

Consists of item such as:i. Sales staffs salariesii. Salaries and commision,iii .Carriage outwards,

iv.D

epreciation of delivery vans,v. Advertising and display expenses


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Format of financial statements

Consists of 2 parts:i. Manufacturing account part .

ii. Trading account part


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MANUFACTURING ACCOUNT PART

It consists cost of:

i. D irect materialii. D irect labour iii .D irect expensesiv.Indirect manufacturing costs


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MANUFACTURING ACCOUNT PART

1. The manufacturing account includesall purchases of raw material,including the stock adjustments for raw material .

2. Also include stock adjustments for work in progress .


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TRA D ING ACCOUNT

This account includes:a. Production cost brought down from

the manufacturing account .

b. Opening and closing stocks of finished good .

c. Sales .


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Manufacturing Account

Production cost for the period: $

D irect materials XXX

D irect labour XXX

D irect expenses XXX

P rime cost XXX

Indirect manufacturing costs XXX

P rduction cost of goods completed c/d to trading acct XXX


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Trading Account

Sales XXX

Less : C ost of Goods Sold

Opening stock of finished goods (A) XXX

Add P dction cost of goods completed b/d XXX

XXX

Less Closing stock of finished goods (B) (XXX)

(XXX)

Gross Profit XXX


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o (A) is production cost of goods unsold in previous period .

o (B) is production cost of goods unsold at theend of the current period .

o Please refer to pg 46 1 for a manufacturingaccount


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ORK IN PROGRESS

The production cost to be carried downto the trading account is that of

production cost of goods completedduring the period .

If item not completed, they cannot be

sold .Therefore, they should not appear in thetrading account .


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ORK IN PROGRESSeg

Total prdtion cost expended during the yr 50,000Pdtion cost last yr on goods not completed last yr but

completed this yr (work in progress) 3,000Pdtion cost this yr on goods which were not completed

by the yr end (work in progress) 4,400The calculation is:Total pdction cost expended this yr 50,00Add cost frm last yr, in respect of goods completed

in this yr (work in progress) 3,00053,000

Less Cost in this yr, fr goods to be completed nx yr (wip) (4,400)

Pdtion cost expended on goods completed this yr 48,600


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Eg.

The Trading Account is concerned withfinished goods.

If there had been $3,500 stock of finishedgood at 1 Jan 2 0X7 and $4,400 at 3 1 D ec2 0X7, and the sales of finished goodsamounted to $ 2 50,000 then the tradingaccount would appear .

Please refer to pg 46 2 &463 .


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Trading Account for the yr ended 3 1 D ec 2 0X7

Sales 2 50,000

Less : C ost of Goods Sold

Stock of finished goods 1.1.2 0X7 3,500

Add P dction cost of goods completed b/d 183,200

1 86,700

Less Stock of finished good 3 1.12.2 0X7 (4,400)

1 82 ,300

Gross Profit c/d 67,700


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APPO R TIONMENT OF EXPENSES

Quite often expenses will have to be split between

a. Indirect manufacturing costs : to be chargedin manufacturing account part.

b. Administration expensesc. Selling and distribution expensesd. Financial charges- b,c,d: to be charged in the profit and loss

account part.


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Eg .

Full set of financial statement

Please refer to page 464 .


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D EPRECIATION

1. The R evaluation Method

2. D epletion Unit Method

3. Machine Hour Method

4. Sum of the Years D igit Method

5. Units of Output Method


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The Revaluation Method

For the businesses which have a lot of lowcost fixed assets .

Eg: Garages or engineering works willhave a lot of spanners, screwdrivers, whichdifficult to calculate the depreciation .

Therefore, the revaluation method is used.

Also use, by a farmers eg, for their cattle .


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The Revaluation Method..eg..

A business has a lot of steel containers. These arenot sold but are used by the business .

$O n 1 Jan 20x6 the containers were valued at 3,500During the yr to 31 Dec containers were

purchased costing 1,300O n 31 Dec 20x6 the containers were valued at 3,800


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The Revaluation Method..eg..

The depreciation is calculated:

Value at start of period 3,500A dd C ost of items bought during period 1,300

4,800

Less Value at close period (3,800)Depreciation fr yr to 31 Dec 20x6 1,000


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D epletion Unit Method

W ith fixed asset such as quarry which

raw materials are dug out to be soldout .


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D epletion Unit Method

Eg . If a quarry bought for $5,000 and it wasexpected to contain 1 ,000 tonnes of saleablematerials, then for each tonne taken out wewould depreciate it by, i .e $5000/ 1 ,000 = $5 .

By a formula:Cost of fixed asset x Num of units taken

Expected total contents in units in period= D epreciation for that period


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Machine Hour Method

The depreciation provision may be based onthe number of hours that the machine was

operated during the period compared withthe total expected running hours duringthe machines life with the business .


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Machine Hour Method

Eg . A business bought a machine costing$2 ,000 having an expected running life of 1 ,000 hour, and no crap value .

D epreciation:$2 ,000/ 1 ,000 hour = $ 2 for every hour it

was operated .


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Sum of the Years D igits Method

It provides for higher depreciation tobe charged early in the life of an assetwith lower depreciation in latersyears.


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Sum of the Years D igits Methodanswer

1st yr 5/15 of $ 3,000 is charged 1,000

2nd yr 4/15 of $ 3,000 is charged 8003rd yr 3/15 of $ 3,000 is charged 6004th yr 2/15 of $ 3,000 is charged 400

5th yr 1/15 of $ 3,000 is charged 2003,000


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Unit of Output Method

E stablishes the total expected units of outputexpected from the asset.Formula of depreciation:

(C ostsalvage value)x period production

total expected production


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E gA

machine which is expected to be able toproduce 10,000 widgets over its useful life. Ithas cost $ 6,000 and has an expected salvagevalue of $ 1,000. In year 1 a total of $ 1,500widgets are produced, and in year 2 theproduction is 2,500 widgets.


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A nswer;Yr 1: $ 5,000 x 1,500/10,000 = $7 50Yr 2: $ 5,000 x 2,500/10,000 = $ 1,250


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End Chapter 37

manufacturing akaun

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