Manufacturing Accounts

Explanation and treatment of direct expenses

All direct expenses are recorded on the debit side of Trading Account. The detailed explanation of some direct expenses is as under: Opening stock or opening inventory The opening stock consisted of different types of finished goods in case of trading business. Whereas in case of manufacturing business opening stock consisted of raw materials, work-in-progress …

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Prime Cost

What is Prime Cost? – Definition Prime Cost is the aggregate of direct material cost, direct labor cost and direct expenses. Prime Cost is also known as ‘Flat Cost’, ‘First Cost’ or ‘Direct Cost’. prime Cost of a product is the total of its direct costs. Once the cost of raw materials used in a …

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Factory Overheads

Definition of Factory Overheads Factory Overheads may be defined as the aggregate of indirect materials, labour and other costs which cannot conveniently be identified with the articles produced or services rendered.  The benefits of these cannot be identified with a particular cost unit. Instead, they are apportioned among cost units on an equitable basis. Overheads constitute …

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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 …

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Difference between trading and manufacturing concern

The difference between Trading and Manufacturing concern can be explained with the help of following points: Nature of purchase Trading Concern: These business institutions purchase merchandise in ready shape to sale condition, for example, furniture dealer purchase furniture from the manufacturer and sell it to customers without additional processing. Manufacturing Concern: Manufacturing institutions employ labour and machinery …

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Work in process

Definition and explanation At the end of any financial period there are certain goods in every manufacturing concern that have been partially processed so that they cannot be called raw material anymore. But at the same time they are not fully processed and cannot be called finished goods either. Such goods are called Work in …

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Manufacturing profit

Explanation Some manufacturing concerns prefer to transfer finished goods from factory to warehouse at a marked up price. This is arrived at by adding a certain pre-set margin (called Manufacturing Profit) to the Production Cost. When preparing the Income Statement, it is the enhanced Cost of Production, which is taken into account to compute the …

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