In the earlier article, much attention has been drawn on Prime Costs.
This article deals with
- what are factory overheads,
- how to treat Work-in-Progress in the Manufacturing Account and
- finally showed a simple format of the Manufacturing and Trading Account of a manufacturing that buy goods from suppliers for resale and also manufacture some of its own goods for resale.
Looking at the below formula:
Cost of Production = Prime Costs + Factory Overheads
Factory Overheads = Cost of Production less Prime Costs
Hence, Factory Overheads Expenses:
Normally, these includes:
Take note that Factory Overheads do not include items like selling and distribution, administration and finance expenses.
To find the cost of production on completed goods, the work-in-progress at the beginning and end of an accounting period must be adjusted. This is by adding the opening work-in-progress to the cost of production and minus the closing work-in-progress ie:
Total cost of production XX
Work-In-Progress- 1 st June xx
Work-in-Progress- 30 th June (xx)
Production costs of completed goods
Take note that sometimes work-in-progress may be valued at prime cost which the adjustment would be to the total prime cost figure instead of total production cost figure.
SAMPLE of a Simple Manufacturing Account & Trading Accounts if taken in Prime costs, Factory overheads and Work-In-Progress
Manufacturing Account and Trading Accounts for the Year Ended 31 st Dec
Opening stock of raw materials $10,000
Purchases of raw materials $5,000
Closing stock of raw materials $(6,000)
Cost of raw materials used/consumed $9,000
Direct Labor $2,000
Factory Overheads $2,000
Opening work-in-progress $2,000
Closing work- in-progress $(1,000)
Total Cost of Production transferred to
Less: Cost of sales:
Opening stock of finished goods $1,000
Add: Purchases $3,000
Add: COST OF PRODUCTION $14,000
Closing stock of finished goods $3,000
Cost of sales $15,000
- Malaysia Financial Reporting Standard (FRS) 111:Construction Contracts
- Manufacturing Account: Prime Cost ( Part 1)
- Revision Notes On Incomplete records
- Answer To Accounting Test Question No.Mfg 1 On Manufacturing Account
- In a manufacturing account, how do we find or compute the cost of production on completed goods?