Manufacturing Accounts | Jamb(UTME) Principles of Accounts

Manufacturing Accounts: General Understanding

1. A manufacturing account records the cost of producing goods.
2. It determines the total cost of production.
3. Manufacturing accounts include direct and indirect costs.
4. They are prepared by manufacturing businesses.
5. Manufacturing accounts assist in pricing decisions.
6. They are essential for calculating gross profit accurately.
7. Manufacturing accounts include opening and closing stock of raw materials.
8. Work-in-progress is considered in manufacturing accounts.
9. Manufacturing accounts precede the income statement.
10. Depreciation of factory equipment is included.
11. Factory overheads are captured in the manufacturing account.
12. Manufacturing accounts separate production costs from other expenses.
13. They help control production costs.
14. Manufacturing accounts improve inventory valuation accuracy.
15. They enhance internal decision-making.
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Reasons for Preparing Manufacturing Accounts

16. To ascertain the cost of finished goods.
17. To control production expenses.
18. To determine profitability of manufacturing activities.
19. To assist in setting appropriate selling prices.
20. To monitor efficiency of resource utilization.
21. To distinguish between factory and non-factory expenses.
22. To help in budgeting and forecasting.
23. To facilitate comparison with industry standards.
24. To prepare accurate financial statements.
25. To identify wastage and inefficiencies.
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Cost Classification

26. Costs are classified as direct or indirect.
27. Direct materials are used directly in production.
28. Direct labor costs are wages paid to production workers.
29. Direct expenses are other production-specific costs.
30. Indirect costs include factory rent and utilities.
31. Manufacturing overhead includes indirect costs.
32. Administration expenses cover office-related costs.
33. Selling expenses are related to marketing the product.
34. Distribution expenses cover delivery and logistics.
35. Fixed costs remain constant regardless of production.
36. Variable costs fluctuate with production volume.
37. Semi-variable costs have both fixed and variable components.
38. Period costs are expensed in the period incurred.
39. Product costs are attached to inventory.
40. Controllable costs are influenced by management decisions.
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Cost Apportionment: Understanding and Basis

41. Cost apportionment distributes shared costs.
42. Floor area can be a basis for rent apportionment.
43. Number of employees can apportion canteen costs.
44. Machine hours allocate maintenance costs.
45. Sales value apportion selling expenses.
46. Headcount basis can allocate administration costs.
47. Kilowatt hours allocate utility expenses.
48. Usage basis assigns materials handling costs.
49. Cost apportionment improves accuracy in costing.
50. Fair apportionment enhances decision-making.
51. Apportionment is based on logical criteria.
52. It aids in departmental performance evaluation.
53. Consistency in apportionment improves comparability.
54. Apportionment helps identify high-cost areas.
55. It ensures accurate product costing.
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Preparation of Manufacturing Account

56. Start with opening stock of raw materials.
57. Add purchases of raw materials.
58. Deduct closing stock of raw materials.
59. Add direct labor costs.
60. Add direct expenses to calculate prime cost.
61. Include opening work-in-progress.
62. Add factory overheads to prime cost.
63. Deduct closing work-in-progress to determine production cost.
64. Factory overheads include depreciation, rent, and utilities.
65. Indirect materials and labor are factory overheads.
66. Maintain separate columns for each cost category.
67. Include carriage inwards on raw materials.
68. Allocate maintenance of factory equipment.
69. Absorb indirect costs properly in manufacturing accounts.
70. Reconcile balances at the end of the accounting period.
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Calculating Prime Cost

71. Prime cost = Direct materials + Direct labor + Direct expenses.
72. Prime cost includes only direct production costs.
73. Prime cost excludes factory overheads.
74. Accurate material pricing improves prime cost calculation.
75. Direct labor hours determine labor cost component.
76. Prime cost varies with production volume.
77. Overtime premiums are part of direct labor costs.
78. Prime cost determines base manufacturing efficiency.
79. Prime cost provides initial production cost estimate.
80. Lower prime cost improves profitability margins.
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Calculating Overhead Costs

81. Overheads include all indirect production costs.
82. Factory rent is part of overhead costs.
83. Depreciation of plant and machinery is overhead.
84. Indirect labor is an overhead cost.
85. Utilities like electricity and water form overheads.
86. Maintenance of factory equipment is an overhead.
87. Overheads are allocated based on usage.
88. Accurate overhead allocation ensures true cost reporting.
89. Overhead costs affect pricing strategies.
90. Overheads are absorbed into production cost.
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Calculating Production Cost

91. Production cost = Prime cost + Factory overheads.
92. Include opening work-in-progress in production cost.
93. Deduct closing work-in-progress from total costs.
94. Production cost forms part of cost of goods sold.
95. Accurate recording of materials usage affects production cost.
96. Labor efficiency impacts production cost.
97. Cost control reduces production cost.
98. Production cost drives pricing and profitability.
99. Manufacturing overhead absorption affects production cost.
100. Production cost estimation aids budgeting.
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Calculating Total Cost

101. Total cost = Production cost + Administration + Selling + Distribution expenses.
102. Add all overheads to production cost.
103. Include freight outwards in distribution cost.
104. Add marketing and promotion expenses.
105. Administrative salaries increase total cost.
106. Insurance premiums add to total cost.
107. Packaging expenses are part of total cost.
108. Accurate apportionment improves total cost calculation.
109. Total cost calculation supports pricing decisions.
110. Total cost influences profit margin decisions.
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Basis of Cost Apportionment

111. Factory area used allocates rent costs.
112. Power consumption allocates electricity costs.
113. Labor hours assign indirect labor costs.
114. Sales volume apportions selling expenses.
115. Number of invoices processed allocates administrative costs.
116. Storage space allocates warehouse costs.
117. Vehicle usage allocates distribution costs.
118. Machine hours allocate depreciation.
119. Advertising spend is assigned to selling costs.
120. Maintenance frequency determines equipment cost apportionment.

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