Manufacturing Account

Manufacturing accounts

Manufacturing accounts

What is the total cost of production?

• The total cost of production is the total of the direct costs and the indirect costs

• This is adjusted due to the work in progress not being finished

  • Add the value of the work in progress from the beginning of the year

  • Subtract the value of the work in progress from the end of the year

    • This is similar to dealing with inventory when calculating the net purchases for a trading business

• Cost of production

  • = Direct materials

  • + Direct labour

  • + Direct expenses

  • + Factory overheads

  • + Opening work in progress

  • - Closing work in progress

How do I complete a manufacturing account?

• STEP 1
  Calculate the cost of materials consumed

  • Start with the opening inventory of raw material

  • Add the purchases of raw materials

    • Subtract purchases returns

  • Add carriage inwards

  • Subtract the closing inventory of raw materials

• STEP 2
  Calculate the prime cost

  • Start with the cost of materials consumed

  • Add direct labour

  • Add direct expenses

• STEP 3
  Calculate the cost of factory overheads

  • Add together any costs linked to the factory but not the production

    • The production costs should be included in the prime cost

• STEP 4
  Add the prime cost and the factory overhead

• STEP 5
  Adjust for the work in progress to calculate the cost of production

  • Add the opening balance for the work in progress to the current total cost

  • Subtract the closing balance for the work in progress

  • This final value is the cost of production