Manufacturing Accounts Flashcards
Describe a manufacturing account and what it is used to show
A manufacturing account will be prepared by businesses which actually make products. A manufacturing account is used to show:
the cost of the goods manufactured
&
the profit (or loss) on the manufacturing process.
What is a direct cost?
A direct cost is a cost which is involved in the actual making of the product. e.g direct materials, direct wages and direct expenses.
What are direct materials?
Direct materials are materials needed to actually make the product such as cloth in a shirt.
What are direct wages?
Direct wages are the wages which are paid to workers who actually help make the products e.g.wages of a sewing machine operator
what are direct expenses?
Direct expenses will consist of expenses which vary directly with production and which can be related to the units of manufacture.
What are royalties?
A royalty is a direct expense, it is a fee paid for the right to use an original idea or an asset which has been given a patent or copyright.
What is an indirect cost/overhead?
Indirect costs are costs which cannot be directly linked to the manufacturing of the products, but are costs which are incurred by the business as a whole and are necessary in order to enable the production process to be carried out.
what is work in progress?
Inventory of work in progress represents the value of the partly completed products in the factory at the start and end of the financial year.
Work in progress at the start of the year will be completed during the course of the year and its costs will therefore be included in the manufacturing account. Work in progress at the end of the year will have to be completed in the next financial year and therefore these costs must be deducted in the manufacturing account.
