Manufacturing accounts

Question 1

Define direct material

Answer 1

Needs raw material to make the finished goods

Question 2

Define direct labour

Answer 2

People who are actually involved in the production of finished goods

Question 3

Define direct expenses

Answer 3

Royalty costs (every item produced a fee must be paid)

Question 4

Define factory overheads

Answer 4

Factory rent / rates / electricity

Question 5

What is the layout of the manufacturing account?

Answer 5

Cost of material consumed
Opening stock of raw materials
+ Purchases of raw materials
+ Carriage inwards
- Closing stock of raw materials
+Direct wages
+Direct expenses
= Prime costs
+ Factory overheads
General expenses
Depreciation of machinery
= Cost of production
+ Opening stock of work in progress
- Closing stock of work in progress
= Cost of production

Question 6

What is the layout for the income statement of a manufacturing account?

Answer 6

Revenue
Less: Cost of Sales
Opening stock of finished goods
+ Cost of Production
+ Purchases of finished goods
- Closing stock of finished goods
= Gross Profit
- Expenses
‘Office/Admin’
= Net Profit