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.