Manufacturing Account: Factory Overheads & Treatment of Work-In Progress ( Part 2)
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 Therefore : 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. |
WORK-IN-PROGRESS:
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
Add: Work-In-Progress- 1 st June xx
(Less: Work-in-Progress- 30 th June (xx) Production costs of completed goods xx
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.
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SAMPLE of a Simple Manufacturing Account & Trading Accounts if taken in Prime costs, Factory overheads and Work-In-Progress XYZ Manufacturers Manufacturing Account and Trading Accounts for the Year Ended 31 st Dec Opening stock of raw materials $10,000 Add: Purchases of raw materials $5,000 Less: Closing stock of raw materials $(6,000) Cost of raw materials used/consumed $9,000 Direct Labor $2,000 Prime Cost $11,000 Add: Factory Overheads $2,000 $13,000 Add: Opening work-in-progress $2,000 Less: Closing work- in-progress $(1,000) Total Cost of Production transferred to Trading Account $14,000
Sales $25,000 Less: Cost of sales: Opening stock of finished goods $1,000 Add: Purchases $3,000 Add: COST OF PRODUCTION $14,000 $18,000 Less: Closing stock of finished goods $3,000 Cost of sales $15,000 Gross Profit $10,000
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Related Posts
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- 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?
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