Lecture on Manufacturing Accounts
Introduction
- Lecture by Kristian on manufacturing accounts, also known as a schedule of cost of goods manufactured.
- Not governed by any international accounting standards; used internally for management.
- No fixed format.
- Encouraged audience to share differing methods or formats in comments.
Basic Concepts
- Purpose of Business Operations: To make a profit (Revenue - Expenses).
- Goods can be bought or made.
- Cost of Goods Manufactured: Replaces 'Purchases' in the cost of goods sold if goods are made internally.
Components of Production Costs
- Materials: Raw materials needed for production.
- Labor: Hiring individuals to create products.
- Overheads: Tools, equipment, supplies needed in production.
- Includes other indirect costs such as rent, utilities, etc.
Direct vs Indirect Costs
- Direct Costs: Easily traceable to the finished product (e.g., materials, labor).
- Indirect Costs (Overheads): Not directly traceable; includes rent, utilities, equipment depreciation.
- Overheads also described as items that are 'over your head' like electricity, rent, etc.
Structure of a Manufacturing Account
- Materials: Includes opening stock, purchases, carriage, returns, and closing stock.
- Prime Costs: Sum of direct materials, direct labor, other direct costs.
- Overheads: Include indirect materials, indirect labor, and other factory costs.
- Total Production Cost: Sum of prime costs and overheads.
Cost Classification Examples
- Indirect Labor: Includes factory manager's salary, may not be directly involved in production.
- Other Direct Costs: Could include franchise fees, license fees, etc.
Adjustments in Manufacturing Accounts
- Work-in-Process (WIP): Goods not completed by the period's end.
- WIP at start is added; WIP at end is subtracted.
- Reflects goods still in progress and impacts the total cost of production.
Example Calculation
- Cost of Materials Consumed: Opening stock + Net purchases - Closing stock.
- Cost of Goods Manufactured: Includes calculations for prime costs and overheads adjustments.
Practical Application
- An example scenario is creating custom clothing for graduation.
- Direct costs: Material and labor.
- Indirect costs: Rent for sewing space, depreciation on sewing machines.
Conclusion
- Manufacturing accounts detail costs involved in internal production.
- Adjustments like depreciation and WIP are crucial.
- Always check specific problem requirements for accurate classification.
Final Remarks
- Encouragement to ask questions and engage with content.
- Importance of a growth mindset in learning and adapting.
- Kristian offers additional resources and invites feedback on past paper solutions.
Maintain a mindset of learning and adapting to better understand and apply manufacturing account concepts.