SUBJECT: ACCOUNTING

CLASS:
THEME: MANUFACTURING ACCOUNT
DATE:
UNIT TOPIC: MANUFACTURING ACCOUNT
LESSON TOPIC: Meaning, Purpose, Terminologies and Computation of Cost of Raw Material and
Prime cost of production.
TIME:
DURATION:
INSTRUCTIONAL OBJECTIVES: At the end of the lesson the students should be able to;
1. Define manufacturing account
2. Explain the terminologies in manufacturing account
3. Explain, what to do with cost of raw materials produced and how finished goods are
transfer from manufacturing dept/account to sale/trading account &dept
4. Draw up a format of manufacturing profit and loss account.

INSTRUCTIONAL RESOURCES: The teacher draw up the format/layout of the manufacturing

account to depict all the terminologies therein.

PRESENTATION: The teacher presents the lesson as follows;

STEP 1: IDENTIFICATION OF PRIOR IDEAS

MODE: ENTIRE CLASS
TEACHERS ACTIVITY: The teacher guides the students into the new topic by asking them to:
a) Define Accounting
b) Defined suspense account & general journal
c) Defined Trading, Profit & Loss a/c and Balance sheet
d) Defined Bank reconciliation statement & control a/c
EXPECTED RESPONSE:
Accounting is the process of recording, classifying, selecting, measuring, interpreting and
communicating financial data of an organization to enable users make decision.
Suspense account is an account used to record the difference on a trial balance temporarily
until errors are detected and corrected. General journal is a book of original or prime entries
used to record transactions in chronological order.
Trading account is an account prepares to ascertain the gross profit realized on sales. Profit and
Loss Account is defined as the account prepared to ascertain the net profit/loss after operating
expenses for the period

Control Account can be defined as the memorandum Account, the balance of which reflects
the aggregate balances of many related subsidiary accounts which are part of double entry
system.
Bank reconciliation is an account prepared to harmonize cash book record of bank and record
statement
The students respond positively.

STEP 2: EXPLORATION
MODE: ENTIRE CLASS
TEACHER ACTIVITY: The teacher guides the students through an inspection of their findings
about manufacturing company account.
STUDENT’S ACTIVITY: The students respond by expressing what they have been able to study in
preparation for the class as regards to the lesson topic.

STEP 3: DISCUSSION
MODE: ENTIRE CLASS
TEACHER’S ACTIVITY: The teacher defines and explain the meaning of manufacturing company
account as shown below;
First, we must be reminded that;
Trading, Profit & Loss a/c is said to be the first phase of the final account of a sole trader. While
balance sheet is said to make up the 2 nd phase of the final account i.e., Trading account is
prepared to determine the gross profit on sale.
While profit and loss account is prepared to determine the net profit or loss after settling all the
expenses and balance sheet prepared to determine and show a clear position of a company
financial status as represented in the presentation of a summary of its asset and liabilities.
Thus, bring us to the introduction of What manufacturing account is all about.
Manufacturing Account can be defined as the account of a manufacturing company/production
company prepared in a view to ascertain the cost of goods produced during the year in such as
manner as to show the components of the cost analysis of the goods produce.
COST COMPONENTS OF A MANUFACTURING FIRM(TERMINOLOGIES)
A. DIRECT MATERIALS: (Items of Production) This comprises of cost of raw materials
consumed, such as cost of R.M purchased carriage costs and the adjustment of opening
& closing stock of R.M by way of adding opening stk of R.M to the fold and deducting
closing stock of R.M.
B. DIRECT LABOUR: (Direct mfg wages) This is the wages of workers per unit of production
such as operator of a mowing machine in the textile company different from the salary
of foreman who supervises every other job within the firm which is considered as
indirect or overhead expenses because its work could not be traced directly to any unit
produced at any period during the year.
C. DIRECT EXPENSES: (Royalties & hiring cost) This consist other production expenses
incurred when specific goods are produced expenses such as
* Royalty payable per unit of output
* Cost of hiring specific plant& machinery for particular jobs.
 D. PRIME COST: This is the sum of the three elements of cost in production mentioned
above.
E. PRODUCTION OVERHEAD EXPENSES: All other expenses incurred in the factory which
cannot be directly traced to any of the units being produced are referred to as indirect
expenses or overhead factory expenses. This includes, such cost as foreman salary,
depreciation of factory plants and machinery, factory rent and rates, factory cleaning,
insurance of factory plant and machinery, factory power and factory repairs.
F. WORK IN PROGRESS: These are partly manufactured goods in various stages of
production. They cannot be classified as raw materials neither can they be classified as
finished goods, but in order to get the true cost of goods produced, adjustment must be
made to work in progress at the beginning and at close by the way of subtracting the
latter (close) from the opening work in progress.
G. FINISHED GOODS: These are items considered to have passed through and completed all
the necessary state of production and is ready for distribution or sales.
WHAT TO DO WITH THE COST OF GOODS PRODUCED
The cost of goods produced when ascertained will be transferred to trading account to take the
place where purchases figure is normally shown since the firm sells the goods it produces.
However, there are cases where a firm may purchase finished goods from other manufacturers
to take advantage of market demand when theirs are sold out or not enough to engage the
market. These occurrences are usually minimal and infrequent and purchases of finished goods
are if any will be added along with the value of goods produced to the opening stock of finished
goods to obtain the cost of goods available for sale.
TRANSFER OF FINISHED GOODS TO TRADING ACCOUNT AND SALES DEPARTMENT VALUES
Where a firm manufactures the goods it sells, it follows that a portion of the gross profit earned
on the sale of the good is attributable to the cost saving achieved by manufacturing instead of
buying the goods. The cost saving also referred to as manufacturing profit which is a
fraction/percentage of cost of goods produced is known as MARK-UP on cost of goods
produced. Thus, the cost of goods produced plus manufacturing profit (mark-up) is the market
value of goods produced. Where the manufacturing profit is given, it is debited to
manufacturing account after obtaining the cost of goods produced and credited to the profit
and loss account. Thus, goods produced are transferred to trading account of market value.

MANUFACTURING, PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31ST DEC., 20……
N N N
Opening stock of R.M xxx Market value of gds produced xxx
Add: Purchases of R.M xx
Less Pur. Returned R.M xx xxx
Carriage of R.M xxx
Cost of R.M available for use xxx
Closing stock of R.M xxx
Cos t of R.M used xxx
Direct labour (mfg wages) xxx
Direct exps (royalties) xxx
PRIIME COST XXX
Factory Overhead exps
Depr. of plant & mach. Xx
Factory light & power xx
Foreman salaries xx
Factory rent xx
Gun factory overhead xx xxx
XXX
Opening work-in-progress xx
Closing work-in-progress (xx) xxx
Production cost xxx
Mfg profit (mark-up) XXX XXX

Format 2
MANUFACTURING, PROFIT & LOSS ACCOUNT
N N N
Opening stock of R.M xxx Cost of production b/d xxx
Add: Purchases of R.M xx
add Carriage inward on R.M xx xxx
xxx
Less Closing stock on R.M xxx
Cost of R.M consumed xxx
Add Directwages xxx
Royalties xxx
Direct exps xxx
PRIIME COST XXX
Factory Overhead:
Factory power xx
Factory rent & rate xx
Indirect wages xx
Depreciation plant & mach xx
Fuel & power xx
Foreman salaries xx
Lubricants xx xxx
XXX
Add Opening work-in-progress xxx
Less Closing work-in-prog (xx) xxx
Cost of production XXX XXX
Opening stk of fin gds xxx Sales xxx
Add cost of production XXX
XXX
Less closing stk of finished gds xxx
XXX
Gross profit XXX XXX
Expenses Gross profit b/d xxx
Selling distribution Discount received xxx
Carriage outwards xx
Commission on sales xx
Salesmen salaries xx xxx
Administration
Admin. Salaries xx
Office rent xx
Office insurance xx
Office lightning xx
Office machinery depr. Xx xxx
Net profit XXX XXX
Since the manufacturing account is mainly concerned with expenses, all the items appear on
the debit side.
STUDENT’S ACTIVITY: The students respond by writing down all of the above discussion.

STEP 4: APPLICATION
MODE: ENTIRE CLASS
TEACHER’S ACTIVITY: The teacher asks the students on the applicable use of the topic to their
business life or that of their friends and family.
EXPECTED RESPONSE: The students express the knowledge acquired from the topic to
determine the profit margin between goods purchased for resale and good produced to be
sold. Take/prepare proper account to determine production profit and how products are being
transferred to trading at market value.
STUDENT’S ACTIVITY: Students respond positively.

STEP 5: EVALUATION
MODE: ENTIRE CLASS
TEACHERS ACTIVITY: The teacher concludes the class by asking the students to
1. Define manufacturing account
2. Explain the terminologies in manufacturing account
3. Explain, what to do with cost of raw materials produced and how finished goods are
transfer from manufacturing dept/account to sale/trading account &dept
4. Draw up a format of manufacturing profit and loss account.
STUDENT’S ACTIVITY: The students respond by answering the above questions.
ASSIGNMENT: The teacher asks the students to read extensively on the topic
(manufacturing trading, profit &loss a/c)
REFERRENCE:
1. O. A. Longe& R.A Kazeem; 2008; Essential Financial Accounting, by Tonad publishers ltd.
1. Robert O. Igben, FCA; 2009; Financial Accounting made simple (FAMS); by ROI publisher
ltd.