Production cost

Definition and explanation

Production cost, or Factory cost, or Cost of goods manufactured, is the sum of Prime cost and Production overheads. The calculation of this figure is shown in a special ledger account called Manufacturing Account.

The figures disclosed in the Trial Balance of a manufacturing concern, relating to raw material, direct labour and factory overheads are transferred from their respective accounts to Manufacturing Account in the same manner as figures relating to purchase and sale of goods are transferred to Trading Account.

The balance of the Manufacturing Account discloses the total cost of goods manufactured, which is then transferred to Trading Account.


Example:

Prepare a Manufacturing account from the following information taken from the books of manufacturing concern:

manufacturing account example

Depreciation on plant is to be provided at 12.5% of cost

Solution:

manufacturing account example solution

Also Check:  Explanation and treatment of direct expenses

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