S5 Manufacturing Account/LWL

Manufacturing Accounts ( )

A. Function of a Manufacturing Acccount

For those businesses which deal with manufacturing products. It is common in
today’s business to act both as manufacturer ( ) and retailer ( ).
e.g Crocodile, Bossini, G2000, U2.
What is the advantage as being a manufacturer as well as a retailer?

B. Division of Costs
The purpose of a Manufacturing Account is to ascertain
Cost of Production ( ).

Cost of Production = Prime Cost + Factory Overheads + Opening Work in

Progress – Closing Work in Progress

C. Prime Cost ( )
Prime cost is the DIRECT expenses which can be traced back to each unit of
production. It consists of:
(1) Direct Materials ( )
(2) Direct Wages ( )
(3) Direct Expenses e.g. Royalty ( )

D. Factory Overheads ( )
Indirect expenses in the factory which helps production of goods.
e.g. Indirect wages, rent and rates of the factory, depreciation of plant and
machinery, factory fuel and power, etc.

E. Work in Progress ( )
Where goods have not been completed, they cannot be sold in the year. For
ease of accounts recording, the ‘whole’ of the Work-in-Progress is calculated.
The treatment is the same as in Opening Stock and Closing Stock,
i.e. + Opening WIP – Closing WIP

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 S5 Manufacturing Account/LWL

F. Format
Company Name
Manufacturing, Trading and Profit and Loss Account
for the year ended 31 December 200X
_________________________________________________________________
$ $ $
Raw Materials:
Opening Stock xxx
Purchases (Raw Materials) xxxx
Add : Carriage Inwards xx
_____
xxxx
Less: Return Outwards (xx)
_____
xxxx
______
xxxx
Less: Closing Stock (Raw materials) (xx)
____
Cost of Raw Materials Consumed xxxx
Direct Materials xxx
Direct Expenses (Royalty) xxx
______
PRIME COST XXXX
FACTORY OVERHEADS:
Factory rent and rates xxx
Fuel and power xxx
Indirect wages xx
Lubricants ( ) xxx
Depreciation of plant and machinery xxx
_____ XXXX
________
XXXX
WORK-IN-PROGRESS
Opening Work-in-Progress (1.1.200x ) xxxx
Less: Closing Work-in-Progress (31.12.200y) (xxx)
_____ XXX
_______
PRODUCTION COST OF GOODS COMPLETED c/d XXXX
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 S5 Manufacturing Account/LWL
=====
(Trading Account)
Finished Goods
Sales xxxx
Less: Cost of Goods Sold
Opening Stock xxx
Add: Production Cost of Goods Completed b/d xxxx
_____
xxxx
Less: Closing Stock (xxx)
_____ (xxx)
_____
GROSS PROFIT XXX
Less : Expenses
Administrative Expenses (Office expenses)
e.g. Office rent and rates
Administrative salaries
General adminstration expenses
Depreciation of office furniture, office equipment
Selling and Distribution Expenses
e.g. Advertising expenses
Sales Commissions
Carriage Outwards
Financial Expenses
e.g. Discounts allowed
Bad Debts
Provisions for Bad Debts
(xxx)
_____
NET PROFIT FOR THE YEAR XXX
====

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 S5 Manufacturing Account/LWL

Balance Sheet as at 31 December 200X

FIXED ASSETS Cost Accumulated Net
Depreciation Book
Value
Machinery xxxxx xxx xxxx
Office Equipment xxxx xxx xxxx
_______________________________
xxxxx xxx xxxx
===============
CURRENT ASSETS
Stock : Raw Materials xxx
Work in Progress xx
Finished Goods xxx
Debtors xxx
Less: Provisions for Bad Debts (xxx)
_____ xxx
Prepaid Expenses xx
Bank xxx
Cash xxx
_____
xxxx
Less: CURRENT LIABILITIES
Creditors xxx
Accrued expenses xx
___ (xxx)
_____
Working Capital xxx
_____
xxxx
====
FINANCED BY:
Capital on 1.1.200x xxxx
Add: Net Profit for the year xxx
______
xxxx
Less: Drawings (xxx)
_____
xxxx
====
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 S5 Manufacturing Account/LWL
G. Difficult Entries:
Example:
Trial Balance for the year ended 31 December 2002
Dr. Cr.
$ $
Opening Stock:
Loose Tools 12,000
Purchases of loose tools 36,000
Carriage inwards 195,000
Wages and salaries: administrative staff 420,000

Notes:
1. Closing Stock: Loose Tools $8,000
2. Salaries of administrative staff included an amount of $80,000 payable to th
factory manager as a bonus.

Answer:
Manufacturing Account for the year ended 31 December 2002
_________________________________________________________________

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 S5 Manufacturing Account/LWL
Exercises
Question 1
Tictac Ltd. Manufactured and sold sports shoes. It had also decided to import
genuine leather shoes to meet the needs of the local consumers. The following
balances were extracted from the books on 31 December 1990:
$
Carriage inwards: shoes imported 62,300
Carriage outwards 6,500
Electricity 5,600
Factory expenses 44,000
Manufacturing wages 137,500
Office expenses 19,700
Office furniture and fixtures at cost 121,000
Opening stocks:
Finished goods at cost 52,300
Work in progress at cost 23,800
Plant and machinery at cost 308,000
Purchases: shoes imported 352,000
Rates and insurance 8,300
Raw materials consumed 354,900
Returns inwards: Shoes manufactured 13,400
Office salaries 146,800
Sales:
Shoes manufactured 925,300
Shoes imported 538,600
Selling expenses 36,200

Additional information:
(i) Closing stocks valued at cost: $
Shoes manufactured -
Shoes imported 55,400
Work in progress 36,700
(ii) From 1 January 1990 onwards, the manufactured goods are transferred to the
trading account at factory cost plus 25% profit loading.
(iii) Depreciation is to be provided at 10% on cost for office furniture and fixtures
and plant and machinery.
(iv) The expenses on electricity, and rates and insurance are chargeable three-fifths
to the factory and the balance to the office.
(v) On 1 July 1990, the company issued for cash $300,000 10% debentures
repayable at the end of June 1995.
(vi) On 31 December 1990, accrued office salaries amounted to $13,200 and the
prepaid insurance premium was $2,300.
REQUIRED:
Prepare for Tictac Ltd. The following accounts for the year ended 31 December
1990:
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 S5 Manufacturing Account/LWL
(a) A manufacturing account showing the prime cost and the total cost of
manufactured shoes transferred to the trading account.
(b) A trading and profit and loss account showing separately the gross
profit on sales of manufactured shoes and imported shoes.
(91Q.9)
Question 2
Success Limited is a retailer of kitchenware. Most goods it trades are purchased
from various suppliers in a finished form. In addition, the company manufactures
several types of kettles. The bookkeeper drew up the following trial balance at 30
April 1996:
$ $
Ordinary share capital of $1 each 200,000
General reserve 23,000
Retained profits 164,000
15% long-term loan 120,000
Machinery – at cost 400,000
- accumulated depreciation as at 1 May 100,000
1995
Motor vehicles – at cost 160,000
Stocks at 1 May 1995
Raw materials 20,000
Manufactured goods 10,000
Other goods 170,000
Debtors 160,000
Creditors 48,000
Bank 50,000
Sales 2,200,000
Purchases – Raw materials 430,000
- Other goods 1,150,000
Salaries 257,000
Rent and rates 22,000
Electricity 10,500
Interest on loan 9,000
Sundry expenses 7,100
____________

2,855,600 2,855,600
======== ========

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 S5 Manufacturing Account/LWL
Additional information:
(i) Depreciation is to be provided using the reducing balance method at the
following rates:
Motor vehicles – 12.5% per annum
Machinery – 10% per annum
The motor vehicle was purchased in 1996. It is the company’s policy to
charge a full year’s depreciation in the year of acquisition.
(ii) Salaries include wages of $54,000 paid to the kettle-making employees.
(iii) Rates prepaid at 30 April 1996 amounted to $2,000.
(iv) Accruals at 30 April 1996 were:
Electricity $1,500
(v) The apportionment of rent and rates and electricity to the kettle-making
department is 25%.
(vi) Stocks at 30 April 1996 were: $
Raw materials 40,000
Manufactured goods 12,500
Other goods 215,000
(vii) The directors proposed to transfer 440,000 of the profits to genral reserve
and to declare a final dividend of $0.50 per share.

REQUIRED:
(a) a manufacturing, trading and profit and loss account (with the section on
appropriations) for the year ended 30 April 1996: and (13 marks)
(b) a balance sheet (7 marks)
(97 Q.7)
Question 3

The following trial balance was extracted from the books of Rock Limited, a candy
manufacturer, on 30 April 1999:
$ $
Ordinary share capital of $1 each 240,000
General reserve 50,000
Retained profits 48,423
Machinery – at cost 873,800
- accumulated depreciation as at 1 167,180
May 1998
Motor vehicles – at cost 134,240
- accumulated depreciation as at 1 74,280
May 1998
-
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 S5 Manufacturing Account/LWL
Stock as at 1 May 1998 165,300
Raw materials 27,200
Work in progress 72,910
Finished goods 127,500 83,920
Debtors and creditors 2,186,400
Sales 936,440
Purchases of raw materials 200,000
8% debentures (issued in 1990) 70,560
Bank 60,790
Wages 240,680
Salaries 243,620
Rent and rates (3/5 office; 2/5 factory) 97,163
Selling expenses ________ _________
3,050,203 3,050,203
======== =======
Additional information:
(i) Stock as at 30 April 1999: $
Raw materials 97,200
Work in progress 30,200
Finished goods 88,400
(ii) Depreciation was to be provided for:
Machinery – 20% on cost
Motor vehicles – 25% on net book value
(iii) Analysis of the wages figure revealed: $
Direct manufacturing 48,632
Factory maintenance 12,158
(iv) Accruals at 30 April 1999 were: $
Debenture interest ?
Rent 4,380
(v) Rock Limited recently agreed to act as the consignee for Mountain Sweet
Limited at a commission of 10% on sales. Consignment sales of $115,000
were credited to the sales account and consignment expenses of $26,500 were
included in selling expenses. The unsold consignment goods were included
in the closing stock of finished goods at $25,000. No information about the
sales has been given to the consignor and no settlement has yet been made.
(vi) The directors proposed to transfer $20,000 of the profits to general reserve and
declare a final dividend of 30%.

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 S5 Manufacturing Account/LWL
REQUIRED TO PREPARE:
(a) a manufacturing, trading and profit and loss account (with the section on
appropriations) for the year ended 30 April 1999; and (11 marks)
(b) a balance sheet as at the same date. (9 marks)
(99 Q.9)

Question 4
The following information is supplied by the bookkeeper of the Overseas
Manufacturing Company for the year ended 31 March 2001:

$
Stocks, 1 April 2000
Raw materials 3,150,000
Finished goods 4,470,000
Work in progress 2,745,000
Sales 77,280,000
Sales commission 1,512,000
Wages and salaries
Direct labour 24,930,000
Indirect labour 4,890,000
Administrative staff 4,203,000
Purchases of raw materials 16,936,000
Carriage inwards 195,000
Carriage outwards 896,000
Electricity and water 1,035,000
Other production expenses 4,980,000
Other administration expenses 2,565,000
Plant and machinery, at cost 6,000,000
Office equipment, at cost 3,800,000
Stocks, 31 March 2001
Raw materials 2,370,000
Finished goods 2,625,000
Work in progress 2,820,000

Additional information:
(i) Depreciation was to be provided for:
Plant and machinery 20% on cost
Office equipment 25% on cost
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 S5 Manufacturing Account/LWL
(ii) Electricity charges of $165,000 were in arrears at 31 March 2001.
(iii) Electricity and water was to be apportioned as follows:
Factory 80%
Administration 20%
(iv) Salaries of administrative staff included an amount of $80,000 payable to the
factory manager as a bonus.
REQUIRED:
Prepare the manufacturing and trading accounts of Overseas Manufacturing
Company for the year ended 31 March 2001, showing clearly the cost of raw
materials consumed, the prime cost, the production cost of finished goods and
gross profit.
(10 marks)
(2001 Q.5)
Question 6
On 30 April 2002, the following balances were extracted from the books of Wilson
Manufacturing Company:
$
Sales 9,890,400
Purchases of raw materials 4,372,000
Carriage inwards 58,000
Carriage outwards 83,840
Stocks, 1 May 2001
Raw materials 225,522
Work in progress 30,180
Finished goods 194,500
Plant and machinery, at cost 980,000
Office equipment, at cost 385,000
Rent and rates 395,250
Electricity and water 134,400
Wages and salaries
Direct labour 491,100
Indirect labour 240,000
Administrative staff 910,150
Repairs to machinery 18,928
Other production expenses 326,400
Other administrative expenses 198,685

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 S5 Manufacturing Account/LWL
Additional information:
(i) Stocks as at 30 April 2002:
$
Raw materials 115,290
Work in progress 94,840
Finished goods 181,900
(ii) Depreciation was to be provided for:
Plant and machinery 15% on cost
Office equipment 20% on cost
(iii) Salaries of administrative staff included an amount of $100,000 paid to the
factory manager.
(iv) Electricity and water was to be apportioned as follows:
Factory 75%
Administration 25%
(v) Rent and rates was to be apportioned as follows:
Factory 80%
Administration 20%

REQUIRED:
(a) Briefly explain the difference between direct costs and indirect costs. (2
marks)
(b) Calculate the following for Wilson Manufacturing Company for the year
ended 30 April 2002:
(i) prime cost; (3 marks)
(ii) total factory overheads; and (3 marks)
(iii) production cost of each unit of finished goods, assuming that Wilson
Manufacturing Company had produced 400,000 units of finished goods
during the year. (3 marks)
(c) Prepare the trading account of Wilson Manufacturing Company for the
year ended 30 April 2002. (3 marks)

(2002 Q.2)

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