The raw materials that are required in manufacturing the finished product.
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Direct Labour
The cost of the workforce engaged in production e.g. machine operators wages (wages of factory supervisors are a production overhead)
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Direct Expenses
Special costs identified with each unit produced e.g. hire of specialist machinery
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Production Overheads
All other costs of manufacture e.g. wages of supervisors, factory rent, depreciation of factory machinery
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Prime Cost = Direct Materials + Direct Labour + Direct Expenses
Basic cost of manufacturing a product before the addition of production overheads
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Production Cost = Prime Cost + Production Overheads
The factory cost of making the product after the addition of production overheads
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Manufacturing Account of a Manufacturer
Direct Materials + Direct Labour + Direct Expenses = Prime Cost + Production Overheads = Production Cost
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Income Statement of a Manufacturer
Revenue - Production Cost (from manufacturing account) = Gross Profit - Non-production Overheads (selling and distribution, administrative, finance expenses) = Profit for the Year
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Manufacturing Account: Step 1 (Raw Materials Used in the Factory)
Opening Inventory of Raw Materials + Purchases - Closing Inventory of Raw Materials = Cost of Raw Materials Used
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Manufacturing Account: Step 2 (Calculating Prime Cost)
Direct Materials + Direct Labour + Direct Expenses = Prime Cost
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Manufacturing Account: Step 3 (Adding Production Overheads)
Prime Cost + Production Overheads = Production Cost
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Manufacturing Account: Step 4 (Adjusting for Work-in Progress)
Production Cost + Opening Inventory of Work-in Progress - Closing Inventory of Work-in Progress
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Income Statement: Cost of Sales
Opening Inventory of Finished Goods + Production Cost of Goods Completed - Closing Inventory of Finished Goods
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Income Statement: Expenses
It deals with the non-production expenses as the factory costs have been dealt with in the manufacturing account.
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Income Statement
Revenue - Cost of Sales = Gross Profit - Non-production Expenses = Profit for the Year
Unit Cost = Production Cost of Goods Completed / Number of Units Completed
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Transfer Prices (Manufacturing Account)
Production Cost + _% = Production Cost of Goods Completed (Transfer Price)
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Transfer Prices (Income Statement)
Opening Inventory of Finished Goods + _%, Closing Inventory of Finished Goods + _%, Profit of the Year + Factory Profit (Production Cost + _%) - Increase (+Decrease) in Provision for Unrealized Profit
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Increase/Decrease in Provision for Unrealised Profit
(Closing Inventory x 10%) - (Opening Inventory x 10%) = +(Increase) or -(Decrease)
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Balance Sheet: Current Assets
Inventory of Finished Goods - Unrealised Profit at End of Year = Adjusted Inventory of Finished Goods
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Calculating Unrealised Profit
(Opening Inventory + _%) x (_ %/ 100 + _%)
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Other cards in this set
Card 2
Front
The cost of the workforce engaged in production e.g. machine operators wages (wages of factory supervisors are a production overhead)
Back
Direct Labour
Card 3
Front
Special costs identified with each unit produced e.g. hire of specialist machinery
Back
Card 4
Front
All other costs of manufacture e.g. wages of supervisors, factory rent, depreciation of factory machinery
Back
Card 5
Front
Basic cost of manufacturing a product before the addition of production overheads
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