Download - Manufacturing Accounts
Manufacturing Accounts
Why Prepare this account
• Manufacturers make goods rather than buy them from suppliers
• A manufacturing account is required to provide a value for the Cost of such production
• A Manufacturing account is made up of ALL of the relevant costs of the finished goods sold and can be split into DIRECT and INDIRECT costs
Manufacturing costs
• Direct costs (can be traced to the manufacture of specific products)• Material• Labour• Expenses (carriage in,
royalties)
• Indirect Costs (must be paid but are of a general benefit to production and so are NOT specifically related to any particular product • Supervisors wages• Factory rent• Factory rates• Factory heat/light• Depreciation of factory
machinery
Basic structure
• COST OF RAW MATERIALS CONSUMED• These are direct costs of raw
materials AND relevant expenses• It is calculated as follows
• Opening stock of raw materialsADD• Purchase of raw materials• Carriage in of raw materialsLESS• Closing stock of raw materials
• PRIME COST OF PRODUCTION• This is the total of ALL DIRECT
COSTS incurred in manufacture of the product
• It is calculated by adding the following
• Cost of raw materials consumed• Direct Labour• Royalties
Basic structure
• FACTORY COST OF PRODUCTION• This is the total of ALL DIRECT AND
ALL INDIRECT COSTS incurred in manufacture of the product
• It is calculated by adding the following
•Prime Cost•Indirect Expenses
Manufacturing Account of John Doe Plc for the year ended 31 December 2010
£ £ £
Opening Stock of Raw Materials 10.000
Add Purchases of raw materials 100,00
Less Returns of raw materials 5,00095,000
Add Carriage In of raw materials 2,000
97,000
Less Closing Stock of raw materials 5,000 92,000
COST OF RAW MATERIALS CONSUMED 102,000
Add Direct Wages 50,000
Add Direct Expenses 2,000 52,000
PRIME COST OF PRODUCTION 154,000
Add Factory Overheads
Maintenance of factory machinery 5,000
Factory Rent and Rates 5,000
Factory Light and |Heat 3,000
Factory Supervision 2,000
Depreciation of Factory machinery 10,000
Factory Overheads 25,000
FACTORY COST OF PRODUCTION 179,000
Exercise 2Manufacturing Account of Woodcraft Plc
£ £ £
Opening Stock of Raw Materials 2.000
Add Purchases of raw materials 60,000
Less Returns of raw materials 060,000
Add Carriage In of raw materials 0
60,000
Less Closing Stock of raw materials 3,000 57,000
COST OF RAW MATERIALS CONSUMED 59,000
Add Direct Wages 36,000
Add Direct Expenses 0 36,000
PRIME COST OF PRODUCTION 95,000
Add Factory Overheads
Insurance of factory building 900
Depreciation of FactoryEquipment 2,500
Factory Light and |Heat 800
Factory Rates 520
FACTORY OVERHEADS 4,720
FACTORY COST OF PRODUCTION 99,720
Accruals / Prepayments• Accruals occur when a debt is
outstanding/ still owing when drawing up the final accounts
• Prepayments occur when a debt has been paid in advance/overpaid at the time of creating the final accounts
• The Manufacturing and Trading profit & Loss account must show what SHOULD HAVE been paid for the year therefore
• If an amount is underpaid/accrued – the amount due is added to the figure in the trial balance and the adjusted figure taken to the P&L account.
• The amount due is transferred to the Balance sheet as a Current Liabiity
Accruals / Prepayments
• If an amount is prepaid – the amount due is deducted from the figure in the trial balance and the adjusted figure taken to the P&L account.
• The amount prepaid is then transferred to the balance sheet as a current asset
Depreciation
• This is the amount by which an asset drops in value over a period of time (usually a year), due to wear and tear
• The amount of depreciation for the year is taken to the Manufacturing/Profit & Loss account
• The accumulated depreciation is posted in the company’s balance sheet
Exercise 3Manufacturing Account of Acorn Plc for the year
ended 31 July£ £ £
Opening Stock of Raw Materials 2,300
Add Purchases of raw materials 87,600
Less Closing Stock of raw materials 3,250 84,350
Cost of Raw Materials consumed 86,650
Add Direct Wages 48,000
Add Direct Expenses 0 48,000
PRIME COST 134,650
Add Factory Overheads
General Expenses 3,450
Lighting & Heating 4,320
Insurance 980
Rent & Rates 1,430
Factory Overheads 10,180
144,830
ADD WIP at beginning 4,500
149,330
Less WIP at end 4,200
FACTORY COST OF PRODUCTION 145,130
Exercise 3Trading Account of Acorn Plc for the
year ended 31 July
£ £ £
Sales 200,000
LESS Cost of Sales
Opening stock of finished goods 6,200
ADD Factory cost of Production 145,130
151,330
Less Closing stock of finished goods 7,500
Cost of Sales 143,830
GROSS PROFIT 56,170
Exercise 4The Vineyard
Notes for the Manufacturing Account
ACCRUALS
Lighting and Heating
Amount paid 3,400
Add Accrual 720 Liability (Balance Sheet)
4,120 Manufacturing Acc
PREPAYMENTS
Insurance
Amount paid 2,400
Less Prepayment 600 Asset (Balance Sheet)
1,800 Manufacturing Acc
Exercise 4Manufacturing Account of The Vineyard for the y/e
30 Nov£ £ £
Opening Stock of Raw Materials 12,400
Add Purchases of raw materials 230,820
Less Closing Stock of raw materials 10,660 220,160
Cost of Raw Materials consumed 232,560
Add Direct Wages 124,000
Add Direct Expenses 0 124,000
PRIME COST 356,560
Add Factory Overheads
General Expenses 14,500
Lighting & Heating 4,120
Insurance 1,800
Rent & Rates 6,000
Depreciation of factory equipment 20,000
Factory Overheads 46,420
402,980
ADD WIP at beginning 32,460
435,440
Less WIP at end 46,500
FACTORY COST OF PRODUCTION 388,940
Exercise 4Trading Account of The Vineyard for the year
ended 31 JulyE £ £
Sales 480,000
LESS Cost of Sales
Opening stock of finished goods 60,800
ADD Factory cost of Production 388,940
449,740
Less Closing stock of finished goods 85,340
Cost of Sales 364,400
GROSS PROFIT 115,600
Exercise5Glenisla Papers Plc for the year ended 31
December
Notes for the Manufacturing Account
ACCRUALS
Note 1 Wages
Amount paid 180,000
Add Accrual 5,600 Liability (Balance Sheet)
185,600 Manufacturing Acc
Note 2 Factory Rent and Rates
Amount Paid 34,000
Add Accrual 2,570 Liability (Balance Sheet)
36,570 Manufacturing Account
Note 3 Depreciation
Cost 80,000
Depreciation 25% 20,000 Manufacturing Account
Net Book Value 60,000
Exercise 5Manufacturing Account of Glenisla Papers Plc
for the year ended 31 December£ £
Opening Stock of Raw Materials 15,000
Add Purchases of raw materials 220,000
Less Returns of raw materials 6,500 213,500
Less Closing Stock of raw materials 12,500 201,000
Cost of Raw Materials consumed 216,000
Add Direct Wages * Note 1 185,600
Add Direct Expenses 0 185,600
PRIME COST 401,600
Add Factory Overheads
Maintenance of factory machinery 18,000
Factory Rent and Rates *Note 2 36,570
Factory Light and |Heat 2,600
Factory Supervision 25,000
Depreciation of factory machinery *Note3 20,000
Factory Overheads 102,170
FACTORY COST OF PRODUCTION 503,770
Exercise 6Northern Lights
Notes for the Manufacturing Account
PREPAYMENTS
Rent
Amount paid 16,500
Less Prepayment 3,400 C Asset (Balance Sheet)
13,100 Manufacturing Acc
Insurance
Amount Paid 4,500
Less Prepayment 1,200 C Asset (Balance Sheet)
3,300 Manufacturing Account
ACCRUAL
Lighting and Heating
Amount paid 4,200
Add Accrual 840 Asset (Balance Sheet)
5,040 Manufacturing Acc
Exercise 6Manufacturing Account of Northern Lights for
the y/e 28 February
£ £ £
Opening Stock of Raw Materials 18,300
Add Purchases of raw materials 126,900
Less Closing Stock of raw materials15,630111,270
Cost of Raw Materials consumed 129,570
Add Direct Wages 143,560
Add Direct Expenses 0 143,560
PRIME COST 273,130
Add Factory Overheads
General Expenses 21,500
Lighting & Heating 5,040
Insurance 3,300
Rent 13,100
Depreciation of Machinery 40,000
Factory Overheads 82,940
356,070
ADD WIP at beginning 24,600
380,670
Less WIP at end 32,500
FACTORY COST OF PRODUCTION 348,170
Exercise 6Trading Account of Northern Lights for
the year ended 28 February
£ £ £
Sales 600,000
LESS Cost of Sales
Opening stock of finished goods 38,000
ADD Factory cost of Production 348,170
386,170
Less Closing stock of finished goods 36,210
Cost of Sales 349,960
GROSS PROFIT 250,040
Exercise 7Sunseekers Products Plc
Notes for the Manufacturing /Trading Acc ACCRUAL
Direct Wages
Amount paid 210,800
Add Accrual 41,400 C Liability (Balance Sheet)
252,200 Manufacturing Acc
PREPAYMENTS
Factory Insurance
Amount paid 12,250
Less Prepayment 3,220 Asset (Balance Sheet)
9,030 Manufacturing Acc
Office Insurance
Amount Paid 14,520
Less Prepayment 1,050 Asset (Balance Sheet)
13,470 Profit & Loss Acc
Exercise 7Sunseekers Products Plc
Notes for the Manufacturing /TPL Acc DEPRECIATION
Factory Machinery
Cost 140,000
Depreciation 20% 28,000 Manufacturing Acc
Net Book Value 112,000
Office Equipment
Cost 60,000
Depreciation 15% 9,000 Profit & Loss Acc
Net Book Value 51,000
Exercise 7Manufacturing Account of Sunseekers Products
Plc for the y/e 30 April£ £ £
Opening Stock of Raw Materials 26,000
Add Purchases of Raw Materials 320,000
Less Closing Stock of Raw Materials 32,500 287500
COST OF RAW MATERIALS CONSUMED 313,500
Add Direct Wages 252,200
Add Direct Expenses 0 252,200
PRIME COST 565,700
ADD FACTORY OVERHEADS
Maintenance and Machinery 48,000
Insurance of Buildings (12250-3220) 9,030
Rent and Rates 43,600
General Expenses 22,430
Depreciation of Machinery 28,000
FACTORY OVERHEADS 151,060
716,760
Add WIP at Beginning 12,500
729,260
Less WIP at End 16,780
FACTORY COST OF PRODUCTION 712,480
Exercise 7Trading Profit & Loss Acc of Sunset Products
Plc for the y/e 30 April £ £ £ Sales
900,000
LESS COST OF GOODS SOLD
Opening stock of finished goods 84,000
Add Factory Cost of Production 712,480
796,480
Less Closing stock of finished goods 98,420 698,060
GROSS PROFIT 201,940
LESS EXPENSES
Insurance 3,320
Rent and Rates 14,520
Advertising 80,000
Provision for Doubtful Debts 5,000
Provision for Dep Office Equipment 9,000 111,840
NET PROFIT 90,100
BAD DEBTS Bad debts are amounts of money
owed to a business by DEBTORS who WILL NOT pay their debt due to bankruptcy etc
Bad Debts listed as an entry in the trial balance should ONLY be entered as an EXPENSE in the PROFIT AND LOSS Account
PROVISION FOR BAD DEBTS
If you are asked to create this account in the notes:
Profit and Loss Account Calculate the TOTAL value (eg
5% of Debtors, etc). Enter the total value of Provision
as an EXPENSE in the Profit and Loss Account
2. Balance Sheet SUBTRACT the TOTAL value
of provision from the Debtors Figure in the Balance Sheet
INCREASE IN PROVISION FOR BAD DEBT
If after calculating the new Provision for Bad Debts figure it shows an increase - eg from £3,000 to £5,000 then:
Add the difference (ie £2000) as an expense in the Profit and Loss Account
2. Subtract the new amount (ie £5,000) from the Debtors figure in the balance sheet
A DECREASE IN PROVISION FOR BAD DEBT
If after calculating the new Provision for Bad Debts figure it shows a decrease - eg from £6,000 to £4,000 then:
Add the difference (ie £2000) to the Gross Profit figure
2. Subtract the new amount (ie £4,000) from the Debtors figure in the balance sheet
Exercise 8Beachwear Plc
Notes for the Manufacturing /TPL Acc PREPAYMENTS
Factory Rent & Rates
Amount paid 26,700
Less Prepayment 4,200 Asset (Balance Sheet)
22,500 Manufacturing Acc
Office Rent & Rates
Amount paid 4,500
Less Prepayment 750 Asset (Balance Sheet)
3,750 Profit & Loss Acc
ACCRUALS
Office Salaries
Amount Paid 43,200
Add Accrual 4,380 Liability (Balance Sheet)
47,580 Profit & Loss Acc
Exercise 8Beachwear plc
Notes for the Manufacturing /Trading Acc PROVISION FOR DOUBTFUL DEBTS
Provision so far 2,000
Adjusted to 6,000 Deducted from Debtors B/S
Difference +£4,000 Increase to Man Acc
DEPRECIATION
Factory Machinery
Cost 220,000
Depreciation 25% 55,000 Manufacturing Acc
Net Book Value 165,000
Office Equipment
Cost 30,000
Depreciation 10% 3,000 Profit & Loss Acc
Net Book Value 27,000
Exercise 8Manufacturing Account of Beachwear plc for
the y/e 30 June£ £ £
Opening Stock of Raw Materials 14,500
Add Purchases of Raw Materials 235,600
Less Closing Stock of Raw Materials 12,500 223,100
COST OF RAW MATERIALS CONSUMED 237,600
Add Direct Wages 167,830
Add Direct Expenses (royalties) 8,000 175,830
PRIME COST 413,430
ADD FACTORY OVERHEADS
Maintenance and Machinery 12,000
Electricity 4,355
Insurance of Buildings 3,500
Rent and Rates (26700-4200) 22,500
Depreciation of Machinery 55,000
FACTORY OVERHEADS 97,355
510,785
Add WIP at Beginning 23,480
534,265
Less WIP at End 23,560
FACTORY COST OF PRODUCTION 510,705
Exercise 8Manufacturing Account of Beachwear plc for
the y/e 30 June
£ £ £ Sales
620,000
Less Cost of Goods Sold
Opening stock of finished goods 64,595
Add Factory Cost of Production 510,705
575,300
Less Closing stock of finished goods 82,300 493,000
GROSS PROFIT 127,000
Less Expenses
Electricity 1,420
Insurance of Buildings 985
Rent and Rates (4500-750) 3,750
Office Salaries(43200+4380) 47,580
Provision for Doubtful Debts 4,000
Prov for Depreciation of Equipment 3,000 60,735
NET PROFIT 66,265
Exercise 11Harvey & Nicholl
Notes for the Manufacturing /TPL Acc DEPRECIATION
Factory Machinery
Cost 180
Depreciation 25% 45 Manufacturing Acc
135
Office Equipment
Cost 40
Depreciation 15% 6 Profit & Loss Acc
34
Delivery Van
Cost 76
Depreciation 25% 19 Profit & Loss Acc
57
Exercise 11Harvey & Nicholl
Notes for the Manufacturing /Trading Acc ACCRUALS
Indirect Wages
Amount Paid 97
Add Accrual 4 Liability (Balance Sheet)
101 Profit & Loss Acc
Office Salaries
Amount Paid 54
Add Accrual 6 Liability (Balance Sheet)
60 Profit & Loss Acc
PREPAYMENT
Rent and Rates
Amount Paid 30
Less Prepayment 5 Asset (Balance Sheet)
25
Exercise 11Harvey & Nicholl
Notes for the Manufacturing /Trading Acc ALLOCATION OF EXPENSES
Rent and Rates
Amended Figure 25
Factory 60% 15 Manufacturing Account
Admin 40% 10 Profit & Loss Account
Insurance of Buildings
Amount Paid 12
Factory 75% 9 Manufacturing Account
Admin 25% 3 Profit & Loss Account
PROVISION FOR DOUBTFUL DEBTS
Debtors 80
Provision 10% 8 Profit & Loss Account
Net Debtors 72 Asset (Balance Sheet)
Exercise 11Manufacturing Account of Harvey Nicholl for
the y/e 31 December
Ledger Balances at 31 December 2004 £000Stocks at 1 January:Raw Materials 75Work in Progress 64Finished Goods 72Direct Factory Wages 682Indirect Factory Wages 97Royalties 23Purchases of Raw Materials 820Returns of Raw Materials 28Carriage on Raw Materials 8Purchases of Finished Goods 107Rent and Rates 30Insurance of Building 12Factory Machinery at cost 180Provision for Depreciation on Factory Machinery 64Office Equipment at cost 40Provision for Depreciation on Office Equipment 26Delivery vans at cost 76Provision for Depreciation on Delivery Vans 28Maintenance of Factory Machinery 23Sales 2,000Office Salaries 54Provision for Doubtful Debts 6Debtors 80Creditors 46NotesStocks at 31 December:Raw Materials 67Work in Progress 59Finished Goods 84
Exercise 11Manufacturing Account of Harvey Nicholl for
the y/e 31December £ £
£ Opening Stock of Raw Materials75
Add Purchases of Raw Materials 820Less Returns of Raw Materials 28 792Add Carriage of Raw Materials 8
800Less Closing Stock of Raw Materials 67 733
COST OF RAW MATERIALS CONSUMED 808 Add Direct Wages 682Add Direct Expenses (royalties) 23 705PRIME COST 1,513 ADD FACTORY OVERHEADSIndirect Wages (97+4) 101Rent and Rates(30 - 5)*60% 15Insurance of building (12* 75%) 9 Provision for Dep of Machinery 45Maintenance of Machinery 23FACTORY OVERHEADS 193
1,706Add WIP at Beginning +64
1,770Less WIP at End -59FACTORY COST OF PRODUCTION 1,711
Exercise 11Trading Profit & Loss Acc of Harvey Nicholl for
the y/e 31 December £ £ £Sales 2,000Less Cost of Goods SoldOpening stock of finished goods (1 Jan) 72Add Factory Cost of Production 1,711Add Purchases of Finished Goods 107
1,890Less Closing stock of finished goods 84 1,806GROSS PROFIT 194Less ExpensesRent and Rates (30-5)*40% 10Insurance of Buildings(12*25%) 3
Provision for Depreciation Of Equip 6Provision for Depreciation Del Vans 19Office Salaries(54+6) 60Provision for Doubtful Debts 2 100NET PROFIT 94
MANUFACTURING PROFIT/LOSS ON MARKET VALUE/PRICE
MARKET VALUE/ PRICE This is the price that the finished goods
could have been purchased for – Instead of the company manufacturing them themselves
MANUFACTURING PROFIT/LOSS A Manufacturing profit is made if the
company can make the goods for less than the market value
A manufacturing loss is made if the cost to make the goods is more than the market value
Therefore:
Market price of Prod – Factory Cost of Prod = Manufacturing profit /loss
Transfer to Trading Account
MARKET VALUE If the MARKET VALUE is known, it
is this amount that is transferred to the TRADING ACCOUNT and NOT the MANUFACTURING COST OF PRODUCTION
MANUFACTURING PROFIT / LOSS A manufacturing PROFIT (calculated
at end of manufacturing account) is ADDED TO the Gross Profit in the trading account
A manufacturing LOSS is DEDUCTED FROM the Gross Profit in the Trading account
Depreciation – Reducing Balance A fixed percentage of Depreciation
is calculated on the NET BOOK VALUE or written down value of the Fixed Asset each year
As the Asset decreases in value the provision for depreciation each year will also reduce
The YEARLY AMOUNT of depreciation is charged to the P&L ACCOUNT
The accumulated depreciation is taken off the Asset’s COST in the BALANCE SHEET
Depreciation – Reducing Balance (Continued)
ExampleOn 1 January Year 1, XYZ plc purchased Fixtures for £30,000 by cheque.
Assets are depreciated by 10% per annum using the reducing balance method.
Year 1 Asset cost 30,000Depreciation = 10% 3,000 P&L AccNBV year 1 27,000 Bal Sheet Year 2NBV from year 1 27,000Depreciation = 10% 2,700 P&L AccNBV year 2 24,300Bal Sheet
Depreciation – Reducing Balance (Continued)
The depreciation shown in the balance sheet will be as follows Year 1Fixed Assets
Cost Dep NBVFixtures 30,000 3,000 27,000 Year 2Fixed Assets
Cost Dep NBVFixtures 30,000 5,700 24,300
Nethermains
Notes for the Manufacturing/ P&L Account
ACCRUAL
Rates
Amount paid 36
Add Accrual 4 Liab (Balance Sheet)
40 Manufacturing Acc/P&L
APPORTIONMENT
Rates 40
Factory 75% 30 Man O/Head
Admin 25% 10 P&L
Management Salaries 50
Factory 80% 40 Man / O’Head
Admin 20% 10 P&L
Nethermains
DEPRECIATION – REDUCED BALANCE METHOD
Factory Machiney
Cost 60
Depreciation to date 20
Current NBV 40
Yearly Depreciation 20% 8 Man O’Head
New NBV 32
Delivery Vehicles
Cost 20
Depreciation to date 5
Current NBV 15
Yearly Depreciation 20% 3 P&L
New NBV 12
Notes for the Manufacturing/ P&L Account
Manufacturing Account of Nethermains for the y/e 31 May £ £
Opening Stock of Raw Materials 8
Add Purchases of raw materials 250
Add Carriage In of raw materials 5
255
Less Closing Stock of raw materials 6 249
Cost of Raw Materials consumed 257
Add Direct Wages 100
Add Direct Expenses (Royalties) 10
PRIME COST 367
Add Factory Overheads
Management Salaries 40
Factory Labour 13
Factory Power 10
Repairs to Factory Machinery 5
Rates 30
Heat & Light 24
Dep of Factory Machinery 8
Factory Overheads 130
497
Manufacturing Account of Nethermains for the y/e 31 May
£ £
B/F 497
ADD WIP at beginning 4
501
Less WIP at end 5
FACTORY COST OF PRODUCTION 496
Market value of finished goods 520
Less Factory Cost of Production 496
Manufacturing Profit 24
Trading Account of Nethermains for the year ended 31 May
£ £
Sales 960
LESS Cost of Sales
Opening stock of finished goods 12
Add purchases of finished goods 119
131
Less return of finished goods 2
129
ADD Mkt V of finished goods 520
649
Less Closing stock of finished goods 9
Cost of Sales 640
GROSS PROFIT 320
Add Manufacturing Profit 24
344