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Manufacturing Accounts | O Level Accounting 7707 & IGCSE Accounting 0452 | Detailed Free Notes To Score An A Star (A*)

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  • Direct Expense
    • A direct expense is one that is directly related to the making of the good.
    • It can be identified individually for each unit produced
    • Includes direct labor cost and direct material cost.
    • Direct material is the actual raw material used to produce one single unit of the product
    • Direct labor is the amount of labor time spent on producing one single unit.
  • Indirect Expense
    • These expenses can not directly be determined for one single unit.
    • However, they still happen in the manufacturing of the products
    • For example, factory electricity cost can not exactly be determined for one single unit, but the cost is still incurred to produce the goods.
    • Similarly, the salary of the manager can not be divided exactly per each unit produced, but it is still incurred in production.
    • All such expenses are called factory overheads
  • Direct material
    • The material used directly in producing each single unit.
  • Direct labor
    • The labor time spent on each single unit.
  • Prime Cost
    • Total direct cost of production: Direct labor + Direct labor + Other direct expenses
  • Factory Overheads
    • Indirect costs.
  • Adjustments
    • One major adjustment is that they can sometimes tell you that salary expense is 40 percent for factory and 60 percent for office
    • The office one would become part of the income statement
    • The 40 percent will become part of the factory overheads
  • Work In Progress
    • Work in progress are the goods that have already started production but have not been completed when the financial year ended.
    • Therefore, the amount has to be adjusted in the manufacturing account
  • Factory Cost
    • Prime Cost + Factory Overheads
  • Cost of Goods Produced + Factory Cost of Production
    • Prime Cost + Factory Overheads + Adjustments for work in progress (Opening work in progress – closing work in progress)
  • Income Statement
    • In Income statement there will be a change in the COST OF GOODS SOLD SECTION
  • Balance Sheet
    • In the statement of financial position, there will be a change in the current assets section

XYZ Firm
Manufacturing Account
For the Period Ended XX-XXX-XXXX

$ $ $
Direct Material
Opening Stock –
Purchases –
Add: Carriage Inwards –
Less: Purchase Returns (-)
Net Purchases –
Less: Closing Inventory (-)
Cost of Direct Material Used –
Direct Labor –
Prime Cost –
Less: Factory Overheads
Salaries –
Depreciation on Plant and Machinery –
Repairing Costs –
Rent and Rates –
Power/ Electricity Costs –
Indirect Material –
Total Factory Overheads (-)
Total Factory Cost –
Opening Work In Progress –
Less: Work In Progress (-)
Cost of Goods Produced –
  • In Income Statement, we make a small change in the COGS section.
    • COGS = Opening Inventory + Cost of Production (From Manufacturing Account) + Purchase of Finished Goods (Any carriage inward to purchased finished goods is added and any returns of finished goods purchased is subtracted) – closing inventory
  • Balance Sheet
    • Current assets will show 3 different inventories
      • Work in progress closing inventory
      • Finished goods closing inventory
      • Raw material closing inventory
Hunain Zia

Hunain Zia has previously achieved considerable success in the high-school educational stream, gaining a massive 154 Total A Grades and 7 Major Distinctions, a process in which he broke/ set 11 different world records, including the most A grades ever achieved, most subjects ever appeared in, most distinctions, gaining distinctions across two separate boards (Pearson Edexcel and CAIE) within the same year/ ever, and even 19 hours of constant examination. All records stand intact today. Hunain pursued his Honors Accounting Degree from the prestigious Bentley University, and then completed an LLB (in Honors) from University of London. Currently, he manages multiple social and commercial projects, has founded digital streams and works tirelessly in the education sector.

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