PRINCIPLES OF ACCOUNTS MANUFACTURING ACCOUNTS

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PRINCIPLES OF ACCOUNTSMANUFACTURING ACCOUNTS

• PRESENTED BY
• MFUTA FM
• KABUNDI HIGH SCHOOL

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MANUFACTURING ACCOUNTS

• The manufacturer is involved or engaged in
  business of purchasing raw-materials and
  converting them into finished products which are
  later sold.

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MANUFACTURING ACCOUNTS

• The manufacturer is specially concerned with the
  costs of manufacturing incurred in the
  manufacturing process

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MANUFACTURING ACCOUNTS

• Therefore, the manufacturing account is concerned
  with ascertaining the cost of production

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MANUFACTURING ACCOUNTS

• Thus, for these firms, a manufacturing account is
  prepared in addition to the trading and profit
  and loss account

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MANUFACTURING ACCOUNTS

• Therefore, a Book-keeper is expected to have
  three stocks as opening stock. These are
• Stock of Raw-materials
• Stock of work-in-progress
• Stock of finished goods

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MANUFACTURING ACCOUNTS

• NB. These three stocks will appear in the Balance
  Sheet as assets of the business
• The preparation of this account requires the
  recognition of two types of factory costs. They
  are

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DIRECT COSTS

• These are the first costs to be incurred since
  they are directly involved in the production of
  goods e.g. raw materials, factory wages, carriage
  on raw materials, direct expenses etc

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2) INDIRECT COSTS

• These are the costs which are not directly
  embodied in the production but are necessary to
  the production process e.g. Factory rent, Factory
  rates, Factory lighting and heating, Factory
  Wages, Factory fuel and power etc

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MANUFACTURING ACCOUNTS

• The manufacturing account, therefore, is divided
  into two sections
• The first one is the Prime Cost and the second
  one is the Cost of goods manufactured or produced
  commonly known as the Cost of Production

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EXAMPLE 1

• From the following particulars extracted from the
  books of W. Kabanda, a manufacturer of Electronic
  goods, prepare the manufacturing account for the
  year ended 31th December, 2008.

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EXAMPLE 1

• 1 Jan 2008 stock of raw materials 80 000
• 31 Dec 2008 stock of raw materials 105 000
• 1 Jan 2008 work-in-progress 35 000
• 31 Dec 2008 work-in-progress 42 000
• Wages Direct
  396 000
• Indirect
  255 000
• Purchases of raw materials 870 000

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EXAMPLE 1

• Fuel and power 99
  000
• Direct expenses 14
  000
• Lubricants
  30 000
• Carriage inwards on raw materials 20 000
• Factory rent
  72 000
• Depreciation of factory plant and
• Machinery
  42 000

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EXAMPLE 1

• Insurance of factory building and
• Plant
  150 000
• General factory expenses 33 000
• Factory internal transport
• Expenses
  18 000

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SOLUTION

• W. KABANDA
• MANUFACTURING ACCOUNTS
• AS AT 31 DECEMBER, 2008

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SOLUTION
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SOLUTION
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SOLUTION
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EXERCISE

• 1. The following figures relating to the year
  2008 have been taken from the books of Chibwe
  Jackson, a manufacturer of mealie meal.
• Stocks at 1/01/08
• Raw materials 285
  000
• Work-in-progress 243 100
• Purchases of R Materials 467 000

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EXERCISE

• Carriage on Raw Materials 6 400
• Direct factory wages 396 000
• Factory power, light heating 163 000
• Depreciation of plant machine 38 000
• Warehouse charges expenses 45 000
• Royalties
  150 000
• General Factory expenses 38 000

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EXERCISE

• Stocks at 31/12/08
• Raw Materials 268
  000
• Work-in-progress 274 000
• REQUIRED
• Prepare the manufacturing account as at
• 31/12/08