2. TYPES OF INVENTORY Raw materials Work in progress Finished
goods/completed goods 3. TYPES OF PRODUCTION COST Production
costPrime cost/ Direct costOverhead cost/ Indirect costDirect
materials Direct laborIndirect laborDirect expenses 3Indirect
materialsIndirect expenses 4. PRIME COST Direct materials1. 4Costs
of the materials used during the period. Include the purchase price
of the raw materials and the acquisition costs related to the
purchase. Examples: Purchase of raw materials, Carriage inwards /
freight charges on raw materials 5. 2.5Direct labour Wages paid to
the people who are directly involved in the manufacturing process.
Example: Direct labour, Direct wages, Factory wages, Production
wages, Manufacturing wages 6. 3.6Direct expenses They refer to the
expenses paid according to each unit of production. Examples:
Royalties, hire purchase of special materials 7. OVERHEAD COST 1.
Indirect materials Lubricants Loose tools 2.Indirect labour wages,
salaries, bonus or commission to cleaners, crane drivers, foremen,
supervisors and production managers.7 8. 3. Indirect expenses
related to the factory, machinery and vehicles Rent and rates
Depreciation Insurance Repairs and maintenance Factory power /
electricity Internal transport Loss on disposal8 9. FINANCIAL
STATEMENT 1. Manufacturing Account 2. Income Statement 3. Balance
Sheet9 10. 1) Manufacturing Account It shows the production cost or
transfer price of goods completed during the accounting period.
10Direct materials Direct labour Direct expenses Factory overhead
expenses Work in progress Factory profit 11. Manufacturing Account
for the year ended. Opening stock of Raw Materials Add: Purchases
of Raw Materials X Return Outwards (raw materials) (X) Carriage
inwards (raw materials) (X) Drawings (raw materials) (X)XX X (X) X
X X XDirect material Less: Closing stock of Raw Materials Cost of
Raw Materials Consumed Direct labour Direct Labor Wages Royalties
Direct Expenses Prime Cost Factory Overhead Expenses: Production
Managers salaries Overhead Factory Power Maintenance of Plant &
Machinery Depreciation of Plant & MachineryX X X X11X 12. Add:
Opening Work in Progress Less: Closing Work in Progress Production
Cost of finished goods Factory profit (% PCFG) Transfer price of
finished goodsX X X X X 13. 2) Income Statement Profit or loss of
the whole business during theaccounting period. Includes all the
expenses and income related to the office and the running of the
whole business such as: Gross profit / loss from the trading
account Factory profit / loss Administration expenses Selling and
distribution expenses Financial expenses Increase / decrease in the
provision for unrealized 13profit 14. Income Statement for the year
ended Sales Less: Returns inwards Less: Cost of Goods Sold Opening
stock of finished goods add: Transfer price of Finished goods Less:
Drawings (finished goods) Returns outwards less: Closing stock of
finished goods Gross Profit Add: Factory Profit Add: Other revenue
Discount Received Reduction in provision for unrealized profitX (X)
X X X (X) (X) X (X) (X) X X X XX 14 15. Less: Other Expenses
Selling expenses commissions on sales salesman salaries carriage
outwards depreciation of delivery van Administrative expenses
rental depreciation of office equipment printing postage Financial
charges bad debts discount allowed interest increase in provision
for unrealized profit 15Net profitXXX XXX XXX XXX XXX XXX XXX XXX
XXX XXX XXX XXX XXX XXX 16. 3) Balance Sheet It shows the assets,
liabilities and equities of the Whole business on a specific date
of the accounting period. 16Assets (closing inventory : raw
materials, WIPs, and finished goods) Liabilities Equities 17.
Balance Sheet as at. Non-current Assets Current Asset Inventory
:-raw materials -work in progress -finished goods less: provision
for unrealized profit Total assets Financed by: Owner`s capital
Opening capital Add: net profit Less: drawings Non-current
liabilities Current liabilities 17 Total liabilities and owner`s
capitalX X X X (X)X XX X (X) X X X X 18. IMPORTANT !!
Some18expenses are related to both the manufacturing process and
the administration of the office such as: Rent, electricity,
insurance, depreciation on premises, motor vehicles etc. These
expenses should be allocated to the factory and office and debited
to the manufacturing account and the profit and loss account
respectively. The bases of allocation are usually given in the
examination questions. 19. Production cost Vs. Transfer price Stock
of raw materials, work in progress andother finished goods are
valued at cost. However, the stock of manufactured goods can be
valued at production cost or the transfer price of goods completed.
Provision of unrealized profit of on stock should be made if
closing stock of manufactured goods is valued at transfer price.19
20. Provision of Unrealized Profit= Stock (at transfer price) xMark
up% 100%+ Mark up(%)Increase/ Decreased in Provision of Unrealized
Profit Increase in Provision (other expenses) Dr Profit and Loss Cr
Provision for Unrealized Profit 20Reduction in Provision (other
revenues) Dr Provision for Unrealized Profit Cr Profit and Loss 21.
Adjustment on expenses Expenses Balance b/d (prepaid) Cash/Bank
Acc. Rec. ( for dis. allowed) Balance c/d (accrued)Income
StatementBalance b/d (accrued) Income StatementDrawings (expenses)
Balance c/d (prepaid)Income statement (admin) Manufacturing account
(factory) 22. Adjustment on revenue Revenue Balance b/d (accrued)
Income Statement Balance c/d (prepaid)Income StatementBalance b/d
(prepaid) Cash/Bank Acc. Pay (for dis.received) Balance c/d
(accrued)Income statement (admin) Manufacturing account (factory)
23. Adjustment on depreciation Accum. depreciation of non-current
assets Balance c/dBalance b/d) Income StatementAccum. depreciation
for previous years 1.Stated in question Depreciation for current
years 2.cost-NBV 1.Policy given 2.No policy (cost-NBV)
