Topic 15: Manufacturing

Question 1

Why do firms prepare Manufacturing accounts?

Answer 1

• In order to calculate the cost of production for the factory
• This will then be used to calculate the cost of sales and the gross profit

Question 2

State the 3 types of inventories.

Answer 2

Raw Materials inventory

work in progress inventory

finished goods inventory

Question 2

What does inventory of raw material include?

Answer 2

• Raw materials inventory is the inventory of crude or processed material that can be converted by manufacture into a saleable good. The raw materials are the resource needed to make finished goods.

Question 3

What does inventory of work in progress include?

Answer 3

work in progress inventory is goods which have started their manufacturing process so are no longer included in the raw materials inventory, but have not yet reached a stage where they are fit to be sold. These are the partly completed goods at the end of the financial year.

Question 4

Finished goodsWhat does inventory of raw material consumed include?

Answer 4

Finished goods inventory is goods which have fully completed the manufacturing process and are available to be sold.

Question 5

What is DIRECT LABOUR?

Answer 5

Wages paid to employees that are directly involved in the production process

Question 6

Whta are DIRECT EXPENSES?

Answer 6

Other expenses relating directly to production

Question 7

What is PRIME COST?

Answer 7

DIRECT MATERIALS + DIRECT LABOUR + DIRECT EXPENSES All DIRECT costs vary directly with the volume of production. They can be identified with a particular unit of production.

Question 8

W

What are FACTORY OVERHEADS?

Answer 8

These are INDIRECT manufacturing expenses. They are expenses of the factory, which are not variable, therefore not identified with a particular unit of production. In the short term they remain the same irrespective of the level of production. They are FIXED COSTS. Indirect wages are the wages of staff NOT directly involved in production