Chapter 18 Flashcards
What is direct factory cost?
A cost that increases with each unit of production e.g. piecework wages
What is prime cost/direct cost?
Total cost of direct material, direct labour and direct expenses (i.e. raw materials plus direct factory cost)
What are production overheads/indirect costs?
Costs that do not vary with production e.g. supervisors salary, business rates, light, heat and power
What is factory cost of production
prime cost plus production overheads (i.e. total direct and indirect costs)
What is factory cost of finished goods
factory cost of finished goods - factory cost of production adjusted for changes in work in progress
What is the formula for calculating cost of sales?
Cost of sales = opening inventory + purchases - closing inventory
Why and how is the formula for calculating cost of sales different for companies that manufacture goods
There may be different raw materials that are purchased and processed to produce finish goods.
In this case, cost of sales = opening inventory + “cost of finished goods produced” - closing inventory
How is the cost of producing finished goods calculated?
Using manufacturing accounts
They are prepared for management purposes only and are not for publication
In manufacturing accounts, what is ‘work in progress’?
When at the end of the accounting period, there may be some goods in the production process that are not yet finished.
The change in value of WIP is adjusted in arriving at cost of finished goods.
What are the relevant sections you need to know?
Manufacturing accounts
1) Prime Cost
2) Factory Cost of Production
3) Factory Cost of Finished Goods Produced
Statement of P or loss
Prime cost
Raw materials
Opening inventory
purchases
Less Closing inventory
=raw materials used in production
+Direct factory costs: factory wages
= Prime Cost
Factory Cost of Production
Indirect expenses
Salaries
Depreciadtion
Light, heat power
business rates
sundry expenses
(+ prime cost)
= factory cost of production
Factory cost of finished goods produced
Work in progress
opening balance
less closing balance
+ factory cost of production
= factory cost of finished goods produced
Statement of profit or loss
Sales
Opening inventory of finished goods,
Factory cost of finished goods transferred - produced
Less closing inventory of finished goods
Gross Profit
Gross profit
Sales - ‘cost of sales = gross profit
cost of sales = opening inv of fin good + factory cost of fin good trans - closing inv
