Manufacturing Accounts (Copy)
Cheat Sheet: 5.5 Manufacturing Accounts
O Level and IGCSE Accounting – Quick Revision
Key Definitions
| Term | Definition |
|---|---|
| Direct Costs | Costs directly linked to production (e.g. raw materials, wages of factory workers) |
| Indirect Costs | Costs not directly traceable to a product (e.g. factory rent, electricity) |
| Prime Cost | Total of direct material + direct labour + direct expenses |
| Factory Overheads | All indirect production costs |
| Work in Progress | Goods partly completed at the beginning or end of the period |
Manufacturing Account Format
| Manufacturing Account for the Year Ended… | Amount ($) |
|---|---|
| Direct Costs | |
| Opening Inventory of Raw Materials | xxxx |
| Add: Purchases of Raw Materials | xxxx |
| Less: Closing Inventory of Raw Materials | (xxxx) |
| Raw Materials Consumed | xxxx |
| Add: Direct Labour | xxxx |
| Add: Direct Expenses (if any) | xxxx |
| Prime Cost | xxxx |
| Add: Factory Overheads | |
| Factory Rent, Electricity, Insurance | xxxx |
| Depreciation of Factory Equipment | xxxx |
| Indirect Wages | xxxx |
| Other Factory Indirect Costs | xxxx |
| Add: Opening Work in Progress | xxxx |
| Less: Closing Work in Progress | (xxxx) |
| Factory Cost of Production | xxxx |
| Transfer to Trading Account in Income Statement | → |
Example Breakdown: Classifying Costs
| Cost Item | Type |
|---|---|
| Wages of assembly line workers | Direct Labour |
| Factory supervisor salary | Indirect Labour |
| Electricity for production | Factory Overhead |
| Purchase of wood for tables | Direct Material |
| Machine depreciation | Factory Overhead |
Work in Progress (WIP)
Adjustment in manufacturing account:
- Opening WIP: Added because it was partly completed last year and now completed this year
- Closing WIP: Subtracted because it was started but not completed this year
Final Output from Manufacturing Account
The Factory Cost of Production is:
Used as Opening Stock of Finished Goods in the Trading Account
Included in Income Statement under Cost of Sales section
Income Statement (Trading Part)
| Trading Account | Amount ($) |
|---|---|
| Opening Inventory of Finished Goods | xxxx |
| Add: Factory Cost of Production | xxxx |
| Add: Purchases of Finished Goods (if any) | xxxx |
| Less: Closing Inventory of Finished Goods | (xxxx) |
| Cost of Sales | xxxx |
| Revenue | xxxx |
| Less: Cost of Sales | (xxxx) |
| Gross Profit | xxxx |
Statement of Financial Position
Include:
- Raw materials inventory
- Work in progress
- Finished goods
- Factory equipment (non-current asset)
- Accumulated depreciation of factory equipment
- Factory-related payables (e.g. unpaid wages)
Adjustments (Same as 5.1 – Sole Traders)
Apply all typical adjustments:
- Depreciation of machinery
- Accruals/Prepayments for factory expenses
- Irrecoverable debts and provision for doubtful debts
- Goods used privately by owner
- Inventory adjustments