PREPARATION OF MANUFACTURING ACCOUNTS ‪@seniorhannington‬

Manufacturing of goods is the conversion of raw materials into finished or semi-finished goods. There are many products which need to be manufactured before selling to the general public like Soft drinks, biscuits etc. In order to manufacture finished goods, companies will acquire raw materials, engage labour, and other inputs necessary to change the raw materials into finished goods.  The main purpose of preparing the manufacturing account is to ascertain the cost of goods manufactured during the financial year and to ascertain the amount of any profit or loss occurred during the manufacturing process. The manufacturing account provides information of all the expenses and costs incurred in the preparation of the goods to be sold. It includes the expenses incurred in preparing the goods but not the finished goods. All the expenses including the cost of raw materials, the cost of machines and their maintenance, the salaries and wages of both skilled and unskilled workers, depreciation of the assets are also included under this account. In this video, we learn how to prepare a manufacturing account. Majorly Manufacturing Costs are Divided into the Following Types:  Direct Material Costs:  These are costs which are directly used in the manufacturing of a product. For example, materials used in the preparation of plastic tables like glue plastic sheets, paints etc. Direct labour costs:  Costs which are paid directly to the worker involved in the manufacturing of a product. For example, in the preparation of Plastic tables wages are paid to the worker involved directly. Direct Expenses:  Expenses incurred in the manufacture of a product. For example, charges for special equipment used in the process of manufacture. Factory Overheads:  Expenses incurred indirectly in the manufacturing of a product. For example, factory rents, factory power and lighting etc. Steps Involved in the Preparation of the Manufacturing Account The following steps will be followed in order to prepare a manufacturing account: Opening stock of raw materials will be added to the purchases and the stock of raw materials shall be deducted. We will get the cost of materials used during the period. All the direct costs will be added.  All the indirect manufacturing costs will be added. To get the production cost of all goods completed, opening stock of Work in progress shall be added and thereafter closing stock of work in progress will be deducted.  The total in the manufacturing account shows the total available for sale during the period or the transfer value of manufactured goods. ‪@seniorhannington‬