Documente Academic
Documente Profesional
Documente Cultură
Some firms have to manufacture their goods before selling them to the general public e.g Coca-
Cola, Nestle etc. where as some merely sell products which are acquired in finished form. A
manufacturing organisation will acquire raw materials, engage labour, and other inputs necessary
to change the raw materials into finished goods. The main aim of preparing the manufacturing
account is to ascertain the cost of goods manufactured during the financial year. It is an
extension of the trading account.
In manufacturing account, there are three types of cost, they are listed below;
raw materials,
finished goods
work in progress.
In the case of a manufacturing enterprise, the manufacturing costs are divided into the following
types, which are listed below:
i) Direct material costs
These types of costs are those materials which are used directly in the manufacture of products or
goods. They are the materials that can be identified in the final products. Example; During the
manufacturing process of tables, direct materials consists of timber, nails, glue, paints etc.
ii) Direct labor costs
Direct labor are wages paid to those who are directly involved in the manufacturing processes of
a product. Example: During the manufacturing processes of tables; direct labor consists of wage
paid to those workers who saw, shape of join the piece of timber into table.
iii) Direct expenses
Direct expenses are expenses that must be incurred in the manufacture of a product. I.e, they can
be directly allocated a particular unit of a product e.g. live charges for a special equipment used
in the process of manufacture, royalties
NB: You have to note that the sum of all the direct costs is known as PRIME COSTS
iv) Indirect manufacturing costs / factory overheads
Indirect manufacturing costs are also known as Factory overheads. They are any other expenses
(apart from the direct costs) for items being produced. Examples are: cleaners’ wages, factory
rents, depreciation of plant and equipment, factory power and lighting.
Note that: prime cost + indirect manufacturing costs = PRODUCTION COSTS
v) Administrative Expenses
Administrative expenses are expenses that are administrative in nature. I.e, they are expenses
which are incurred in the process of planning, controlling and directing the business
organization.
e.g. office rents, office electricity, depreciation of office machinery, secretarial salaries.
vi) Selling and distribution expenses
Selling and distribution expenses are expenses which are incurred in the process of selling,
promoting and distributing the goods manufactured. Examples are; advertising expenses,
carriage outwards, depreciation of motor van, salesmen salaries etc.
vii) Finance Costs
These are expenses such as bank charges, discount allowed and every other monetary expenses.
NOTE: