4.20 Financial Statements of a Manufacturer

Question 1

What is a manufacturing account?

Answer 1

manufacturing account are accounts that deal with making products rather than buying and selling them.

Question 2

What is work-in-progress?

Answer 2

they are goods that the business has not yet completed the process of production.

Question 3

What are the two types of cost in a manufacturing account?

Answer 3

• Direct cost
• Indirect cost

Question 4

What is direct cost?

Answer 4

Direct costs are the expenses a business incurs that can be directly tied to the production of a good or the provision of a service.

Question 5

What is indirect costs?

Answer 5

indirect costs occur in the factory or where the production happens but not directly linked to the items being manufactured. for example, rent, electricity.

Question 6

What are the 3 direct costs that should be calculated?

Answer 6

• direct materials.
• direct labor.
• direct expenses

Question 7

What is direct materials? direct labor? direct expenses?

Answer 7

Direct materials:- raw materials required for the manufacture of a product.
Direct labor:- wages of machine operators who make the product.
Direct expenses:- Expenses that can be identified to each unit production.

Question 8

What is the total of all the direct costs known as?

Answer 8

• prime cost.

Question 9

What is the order of preparing financial statements for a manufacturing business?

Answer 9

• manufacturing account.
• income statement.
• statement of financial position.

Question 10

What is the order when preparing manufacturing account.

Answer 10

Cost of raw materials:
opening inventory
+ purchases of raw materials.
+ carriage inwards.
- return of raw materials purchased.
- closing inventory of raw materials.
RAW MATERIALS CONSUMED ——————-
+ direct labour.
+ other direct expenses.
PRIME COST ——————————————-
Indirect costs/ Factory overheads :
+ supervisor’s wages.
+ depreciation
etc.

Work-in-progress:
+ opening inventory of WIP
- Closing inventory of WIP.
PRODUCTION COST

Question 11

What is the change in income statement in manufacturing account?

Answer 11

In :
cost of sales.
+ opening inventory.
+ production cost.
- purchases returns
- closing inventory.

Question 12

What is the change in statement of financial position in a manufacturing business?

Answer 12

In current assets section:
all the three closing inventories must be included:
- inventory of raw materials.
- inventory of finished goods.
- inventory of work-in-progress.