The main aim of accounting is to arrange accounting data in order to ascertain the amount of profit or loss of an entity. For this purpose, we prepare the financial statements. The primary purpose of preparing Manufacturing Account format is to ascertain the manufacturing costs of finished goods.
Non-manufacturing entities or the trading entities are involved in the purchase and sale of goods at a profit. Usually, Manufacturing entities prepare a Manufacturing Account also in addition to Trading Account, Profit and Loss Account and Balance Sheet.
Manufacturing Account Format
The manufacturing account helps to better the cost-effectiveness of manufacturing activities. After the ascertainment of the costs of finished goods, we need to transfer this cost to Trading Account.
The trading account shows Gross Profit. Whereas, the Manufacturing Account depicts the cost of goods sold and also includes direct expenses. Manufacturing account addresses the raw material and work in progress and does not deal with the finished goods.
We debit all the direct production expenses such as depreciation on plant and machinery and factory building, repairs on plant and machinery and factory building, salary to the factory manager, wages, cartage on raw-materials, etc.
Thus, the cost of finished goods includes the cost of raw materials and all direct expenses. All indirect expenses form a part of the Profit and Loss A/c.
(source – CTE resource centre)
However, there is no standardized format of a Manufacturing Account. The following format covers various elements:
For the year ended…
|To Opening Work-in-progress||By Closing Work-in-Progress|
|To Raw material consumed:||By Sale of scrap|
|Opening inventory||By Trading A/c|
|Add: Purchases||(transfer of Cost of production)|
|Less: Closing inventory|
|To Direct Wages|
|To Direct expenses|
|To Factory expenses:|
|Repairs & Maintenance of plant and machinery|
|Depreciation on plant and machinery|
|Depreciation on factory building|
Points to remember:
- In the absence of ledger balances like Inventories, quantity manufactured etc, we need to calculate the figures for Inventories, sales etc. from the available data.
- The Manufacturing Account format must show the quantities and values.
- Units sold = Opening inventory + units manufactured- closing inventory
- In the absence of specific information, we always assume “first in-first out” basis, for closing inventory valuation.
Solved Example For You:
Mr. Prasad runs a factory which produces caps. Following are the details available in respect of his manufacturing activities for the year ended on 31.03.2018
|Opening work-in-progress (4,000 units)||8,000|
|Closing work-in-progress (5,000 units)||10,000|
|Opening stock of Raw materials||75,000|
|Closing stock of Raw materials||85,000|
|Purchase of raw material||4,20,000|
|Hire charges of [email protected]₹0.50 per unit manufactured|
|Rent of factory||1,50,000|
|Direct wages- @₹0.70 per unit manufactured and @₹0.30 per unit of closing W.I.P|
|Repairs and maintenance||100,000|
Prepare a manufacturing Account of Mr. Prasad for the year ended 31.03.2018.
In the Books of Mr. Prasad
Manufacturing Account for the year ended 30.03.2018
|To Opening Work-in-progress||4000||8000||By Closing Work-in-Progress||5000||10000|
|To Raw material consumed:||By Trading A/c||971500|
|Opening inventory||75000||(transfer of Cost of production)|
|Less: Closing inventory||(85000)|
|To Direct Wages||183500|
|To Direct expenses (hire charges of machinery)||130000|
|To Factory expenses:|
|Repairs & Maintenance of plant and machinery||100000|
Direct Wages= 260000 [email protected]₹0.70=. ₹182000
5,000 [email protected]₹ 0.30=. ₹ 1500
Hire charges on machinery:-260000 unit @ ₹0.50 ₹130000