Manufacturing Account

Question 1

How do you calculate Inventory at Cost?

Answer 1

Transfer Price / 1 + Mark up %

Question 2

How do you calculate the Rate of Mark up % when unrealised profit and transfer price is given?

Answer 2

Unrealised Profit / Inventory [TV] - Unrealised Profit * 100

Question 3

Define Manufacturing Account

Answer 3

An account to record the direct and indirect costs associated with the production of a good

Question 4

Define:
1. raw materials
2. work in progress
3. finished goods

Answer 4

1. raw materials are those that form a part of a product but have not yet had anything done with them
2. work-in-progress is production that has started but requires further work to be put in a state of completeness to be delivered to the customer
3. finished goods are goods that are sent to the customer

Question 5

Define Direct Costs

Answer 5

Those that can be directly linked to the manufacturing of the final good

Ex. Direct factory workers

* Prime Costs are the Direct Costs of making a product

Question 6

Define Indirect Costs

Answer 6

Those that cannot be directly linked to the manufacturing of the final good but are required and incurred in the manufacturing process

Ex. Heat and Light

Question 7

What is Transfer Price?

Answer 7

The price of a product that one part of an organisation sells to another part of the organisation. It includes a markup of factory profit.

Question 8

What is Factory Profit?

Answer 8

The amount added to the factory cost of completed goods to arrive at the transfer price

Question 9

What are the implications of changing the rate of factory profit?

Answer 9

Increasing factory profits may increase the transfer price value, which can increase the cost of sales in the income statement, thus reducing gross profit and profit for the year - vice versa