Append below a brief revision note on manufacturing account

Key areas to note on the topic of Manufacturing Account:

1.0 Manufacturing accounts are prepared for internal management purpose only. This report helps management to distinguish between the costs and profitability associated with the manufacturing operations and those associated with trading ( shown in the trading account)

2.0 In a manufacturing account, we have:

  • PRIME COST= Cost of raw materials + direct labor employed in production


  • FACTORY COST OF GOODS PRODUCED= Prime Cost+Indirect facoty expenses plus or minus any movement over the period in the cost of work in progress


  • FACTORY PROFIT=a notional profit earned in the manufacturing operation, reflecting the relative cheapness of manufacturing goods compared with buying them from outsiders


  • TRANSFER PRICE OF FINISHED GOODS PRODUCED=Factory Cost+ Factory Profit. This transfer price appears in the trading account as part of the cost of goods sold. 

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