Manufacturing-Account Igcse Cie

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Exam code:0452 & 0985

Manufacturing account

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

Examiner Tips and Tricks

A business might use a factory and an office. Only the factory expenses are included in the cost of production.

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

Examiner Tips and Tricks

Remember the finished goods do not appear on the manufacturing account. They appear on the income statement.

Worked Example

Comfy Chairs is a manufacturer of specialist garden chairs. The following information is available from the business for the year ended 31 August 31 2023.

	$
Inventory at 1 September 2022 Raw materials Work in progress Finished goods	45 000 6 000 51 000
Inventory at 31 August 2023 Raw materials Work in progress Finished goods	53 750 8 000 42 000
Purchases of raw materials	160 000
Factory rent	24 000
Royalties	3 440
Depreciation of factory equipment	6 400
Factory heating and lighting	5 500
Wages of factory operatives	16 000
Wages of factory supervisor	8 000
Factory insurance	4 220

Prepare the manufacturing account of Comfy Chairs for the year ended 31 August 2023.

Answer

Identify:
- The direct materials
  - Raw materials and purchases
- The direct labour
  - Wages of factory operatives
- The direct expenses
  - Royalties
Ignore the inventory of finished goods
The other costs are the factory overheads

Prepare the account in the required format.

Comfy Chairs Manufacturing Account for the year ended 31 August 2023
Cost of material consumed
Opening inventory of raw materials		45 000
Purchases of raw materials		160 000
		205 000
Less: Closing inventory of raw material		53 750
		151 250
Direct wages – factory operatives		16 000
Direct expenses – royalties		3 440
Prime cost		170 690
Factory overheads
Factory rent	24 000
Factory insurance	4 220
Wages – supervisor	8 000
Factory heating and lighting	5 500
Depreciation of factory equipment	6 400	48 120
		218 810
Add: Opening work in progress		6 000
		224 810
Less: Closing work in progress		8 000
Cost of production		216 810

Accounting Igcse Cie

Manufacturing-Account Igcse Cie