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
materials
ADD
• Purchase of raw materials
• Carriage in of raw materials
LESS
• 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
Add Purchases of raw materials
£
10.000
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
Add Direct Wages
Add Direct Expenses
102,000
50,000
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
Factory Overheads
FACTORY COST OF PRODUCTION
10,000
25,000
179,000
Exercise 2
Manufacturing Account of Woodcraft Plc
£
£
Opening Stock of Raw Materials
Add Purchases of raw materials
£
2.000
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
Add Direct Wages
Add Direct Expenses
59,000
36,000
0 36,000
PRIME COST OF PRODUCTION
95,000
Add Factory Overheads
Insurance of factory building
Depreciation of FactoryEquipment
900
2,500
Factory Light and |Heat
800
Factory Rates
520
FACTORY OVERHEADS
FACTORY COST OF PRODUCTION
4,720
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 3
Manufacturing Account of Acorn Plc for the
year ended 31 July
£
£
Opening Stock of Raw Materials
Add Purchases of raw materials
Less Closing Stock of raw materials
2,300
87,600
3,250 84,350
Cost of Raw Materials consumed
Add Direct Wages
Add Direct Expenses
£
86,650
48,000
0 48,000
PRIME COST
134,650
Add Factory Overheads
General Expenses
3,450
Lighting & Heating
4,320
Insurance
Rent & Rates
Factory Overheads
980
1,430
10,180
144,830
ADD WIP at beginning
4,500
149,330
Less WIP at end
FACTORY COST OF PRODUCTION
4,200
145,130
Exercise 3
Trading 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
Cost of Sales
GROSS PROFIT
7,500
143,830
56,170
Exercise 4
The Vineyard
Notes for the Manufacturing Account
ACCRUALS
Lighting and Heating
Amount paid
Add Accrual
3,400
720 Liability (Balance Sheet)
4,120 Manufacturing Acc
PREPAYMENTS
Insurance
Amount paid
Less Prepayment
2,400
600 Asset (Balance Sheet)
1,800 Manufacturing Acc
Exercise 4
Manufacturing Account of The Vineyard for the
y/e 30 Nov
£
£
Opening Stock of Raw Materials
Add Purchases of raw materials
Less Closing Stock of raw materials
12,400
230,820
10,660 220,160
Cost of Raw Materials consumed
Add Direct Wages
Add Direct Expenses
£
232,560
124,000
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
Factory Overheads
20,000
46,420
402,980
ADD WIP at beginning
32,460
435,440
Less WIP at end
FACTORY COST OF PRODUCTION
46,500
388,940
Exercise 4
Trading Account of The Vineyard for the year
ended 31 July
E
£
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
Exercise5
Glenisla 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
Add Accrual
34,000
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 5
Manufacturing Account of Glenisla Papers
Plc for the year ended 31 December
£
£
Opening Stock of Raw Materials
Add Purchases of raw materials
15,000
220,000
Less Returns of raw materials
6,500 213,500
Less Closing Stock of raw materials
12,500
Cost of Raw Materials consumed
Add Direct Wages * Note 1
Add Direct Expenses
201,000
216,000
185,600
0
PRIME COST
185,600
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 6
Northern 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
Add Accrual
4,200
840 Asset (Balance Sheet)
5,040 Manufacturing Acc
Exercise 6
Manufacturing 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 materials15,630 111,270
Cost of Raw Materials consumed
Add Direct Wages
Add Direct Expenses
129,570
143,560
0
PRIME COST
143,560
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
FACTORY COST OF PRODUCTION
32,500
348,170
Exercise 6
Trading 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 7
Sunseekers Products Plc
Notes for the Manufacturing /Trading Acc
ACCRUAL
Direct Wages
Amount paid
Add Accrual
210,800
41,400 C Liability (Balance Sheet)
252,200 Manufacturing Acc
PREPAYMENTS
Factory Insurance
Amount paid
Less Prepayment
12,250
3,220 Asset (Balance Sheet)
9,030 Manufacturing Acc
Office Insurance
Amount Paid
Less Prepayment
14,520
1,050 Asset (Balance Sheet)
13,470 Profit & Loss Acc
Exercise 7
Sunseekers Products Plc
Notes for the Manufacturing /TPL Acc
DEPRECIATION
Factory Machinery
Cost
Depreciation 20%
Net Book Value
140,000
28,000 Manufacturing Acc
112,000
Office Equipment
Cost
Depreciation 15%
Net Book Value
60,000
9,000 Profit & Loss Acc
51,000
Exercise 7
Manufacturing Account of Sunseekers
Products Plc for the y/e 30 April
£
£
Opening Stock of Raw Materials
Add Purchases of Raw Materials
26,000
320,000
Less Closing Stock of Raw Materials
32,500
COST OF RAW MATERIALS CONSUMED
Add Direct Wages
Add Direct Expenses
£
287500
313,500
252,200
0
PRIME COST
252,200
565,700
ADD FACTORY OVERHEADS
Maintenance and Machinery
Insurance of Buildings (12250-3220)
48,000
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
FACTORY COST OF PRODUCTION
16,780
712,480
Exercise 7
Trading 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
GROSS PROFIT
698,060
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
NET PROFIT
111,840
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:



2.

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
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 8
Beachwear Plc
Notes for the Manufacturing /TPL Acc
PREPAYMENTS
Factory Rent & Rates
Amount paid
Less Prepayment
26,700
4,200 Asset (Balance Sheet)
22,500 Manufacturing Acc
Office Rent & Rates
Amount paid
Less Prepayment
4,500
750 Asset (Balance Sheet)
3,750 Profit & Loss Acc
ACCRUALS
Office Salaries
Amount Paid
Add Accrual
43,200
4,380 Liability (Balance Sheet)
47,580 Profit & Loss Acc
Exercise 8
Beachwear 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
Depreciation 25%
Net Book Value
220,000
55,000 Manufacturing Acc
165,000
Office Equipment
Cost
Depreciation 10%
Net Book Value
30,000
3,000 Profit & Loss Acc
27,000
Exercise 8
Manufacturing Account of Beachwear plc
for the y/e 30 June
£
£
Opening Stock of Raw Materials
Add Purchases of Raw Materials
14,500
235,600
Less Closing Stock of Raw Materials
12,500
COST OF RAW MATERIALS CONSUMED
Add Direct Wages
Add Direct Expenses (royalties)
£
223,100
237,600
167,830
8,000
PRIME COST
175,830
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
FACTORY COST OF PRODUCTION
23,560
510,705
Exercise 8
Manufacturing 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
GROSS PROFIT
493,000
127,000
Less Expenses
Electricity
Insurance of Buildings
Rent and Rates (4500-750)
1,420
985
3,750
Office Salaries(43200+4380)
47,580
Provision for Doubtful Debts
4,000
Prov for Depreciation of Equipment
3,000
NET PROFIT
60,735
66,265
Exercise 11
Harvey & Nicholl
Notes for the Manufacturing /TPL Acc
DEPRECIATION
Factory Machinery
Cost
Depreciation 25%
180
45 Manufacturing Acc
135
Office Equipment
Cost
Depreciation 15%
40
6 Profit & Loss Acc
34
Delivery Van
Cost
76
Depreciation 25%
19 Profit & Loss Acc
57
Exercise 11
Harvey & Nicholl
Notes for the Manufacturing /Trading Acc
ACCRUALS
Indirect Wages
Amount Paid
Add Accrual
97
4 Liability (Balance Sheet)
101 Profit & Loss Acc
Office Salaries
Amount Paid
Add Accrual
54
6 Liability (Balance Sheet)
60 Profit & Loss Acc
PREPAYMENT
Rent and Rates
Amount Paid
Less Prepayment
30
5 Asset (Balance Sheet)
25
Exercise 11
Harvey & 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
Provision 10%
Net Debtors
80
8 Profit & Loss Account
72 Asset (Balance Sheet)
Exercise 11
Manufacturing Account of Harvey Nicholl
for the y/e 31 December
Ledger Balances at 31 December 2004
£000
Stocks at 1 January:
Raw Materials
75
Work in Progress
64
Finished Goods
72
Direct Factory Wages
682
Indirect Factory Wages
97
Royalties
23
Purchases of Raw Materials
820
Returns of Raw Materials
28
Carriage on Raw Materials
8
Purchases of Finished Goods
107
Rent and Rates
30
Insurance of Building
12
Factory Machinery at cost
180
Provision for Depreciation on Factory Machinery 64
Office Equipment at cost
40
Provision for Depreciation on Office Equipment 26
Delivery vans at cost
76
Provision for Depreciation on Delivery Vans
28
Maintenance of Factory Machinery
23
Sales
2,000
Office Salaries
54
Provision for Doubtful Debts
6
Debtors
80
Creditors
46
Notes
Stocks at 31 December:
Raw Materials
67
Work in Progress
59
Finished Goods
84
Exercise 11
Manufacturing Account of Harvey Nicholl
for the y/e 31December
£
Opening Stock of Raw Materials
Add Purchases of Raw Materials
Less Returns of Raw Materials
Add Carriage of Raw Materials
£
£
75
820
28
Less Closing Stock of Raw Materials
COST OF RAW MATERIALS CONSUMED
Add Direct Wages
Add Direct Expenses (royalties)
PRIME COST
ADD FACTORY OVERHEADS
Indirect Wages (97+4)
Rent and Rates(30 - 5)*60%
Insurance of building (12* 75%)
Provision for Dep of Machinery
Maintenance of Machinery
FACTORY OVERHEADS
Add WIP at Beginning
Less WIP at End
FACTORY COST OF PRODUCTION
792
8
800
67
682
23
733
808
705
1,513
101
15
9
45
23
193
1,706
+64
1,770
-59
1,711
Exercise 11
Trading Profit & Loss Acc of Harvey Nicholl
for the y/e 31 December
£
Sales
Less Cost of Goods Sold
Opening stock of finished goods (1 Jan)
Add Factory Cost of Production
Add Purchases of Finished Goods
Less Closing stock of finished goods
GROSS PROFIT
Less Expenses
Rent and Rates (30-5)*40%
Insurance of Buildings(12*25%)
Provision for Depreciation Of Equip
Provision for Depreciation Del Vans
Office Salaries(54+6)
Provision for Doubtful Debts
NET PROFIT
£
£
2,000
72
1,711
107
1,890
84 1,806
194
10
3
6
19
60
2
100
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)
Example
On 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
Depreciation = 10%
NBV year 1
30,000
3,000 P&L Acc
27,000 Bal Sheet
Year 2
NBV from year 1
Depreciation = 10%
NBV year 2
27,000
2,700 P&L Acc
24,300 Bal Sheet
Depreciation – Reducing
Balance (Continued)
The depreciation shown in the balance
sheet will be as follows
Year 1
Fixed Assets
Fixtures
Cost
30,000
Dep
NBV
3,000 27,000
Cost
30,000
Dep
NBV
5,700 24,300
Year 2
Fixed Assets
Fixtures
Nethermains
Notes for the Manufacturing/ P&L Account
ACCRUAL
Rates
Amount paid
Add Accrual
36
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
Notes for the Manufacturing/ P&L Account
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
Depreciation to date
Current NBV
20
5
15
Yearly Depreciation 20% 3 P&L
New NBV
12
Manufacturing Account of Nethermains for
the y/e 31 May
£
£
Opening Stock of Raw Materials
Add Purchases of raw materials
Add Carriage In of raw materials
8
250
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
Factory Overheads
8
130
497
Manufacturing Account of Nethermains for
the y/e 31 May
£
B/F
ADD WIP at beginning
£
497
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