AS-L16 — Manufacturing Accounts
Understanding how manufacturing businesses calculate the cost of production using manufacturing accounts.
Learning Objectives
By the end of this lesson students should be able to:
• understand the purpose of a manufacturing account
• distinguish between direct and indirect production costs
• calculate cost of production
• prepare a simple manufacturing account
• answer examination-style questions
Concept Framework
What is a Manufacturing Account?
A manufacturing account is prepared by manufacturing businesses to calculate the cost of goods produced during an accounting period.
Main Components
Direct Materials → raw materials used in production
Direct Labour → wages directly linked to production
Prime Cost → direct materials + direct labour + direct expenses
Factory Overheads → indirect production costs
CORE RULES
| Item | Treatment |
|---|---|
| Opening Raw Materials | Add |
| Purchases of Raw Materials | Add |
| Closing Raw Materials | Subtract |
| Direct Labour | Add |
| Factory Overheads | Add |
| Office Expenses | Exclude |
TRANSACTION LOGIC
Manufacturing accounts calculate the cost of producing goods, not the cost of selling goods.
Only production-related costs are included.
Administrative and selling expenses are excluded because they are not part of manufacturing.
Worked Examples
Example 1 — Prime Cost
Direct Materials £12,000
Direct Labour £8,000
Prime Cost:
£12,000 + £8,000
= £20,000
Example 2 — Raw Materials Consumed
Opening Raw Materials £4,000
Purchases £10,000
Closing Raw Materials £3,000
Materials Consumed:
£4,000 + £10,000 − £3,000
= £11,000
Example 3 — Cost of Production
Prime Cost £20,000
Factory Overheads £6,000
Cost of Production:
£20,000 + £6,000
= £26,000
📌 Additional questions are available in the 🎯 Lesson wise resources, Module wise resources, Guess Question Papers + YouTube Explanation section.
Students should practise explanation questions regularly to improve examination performance.
Enrolled students may submit questions from recognised textbooks, past examination papers, or other academic material for expert clarification through the Student Doubt Support facility.
Structured Practice
Level 1 – Concept Check
Define prime cost
Define factory overheads
Level 2 – Application Practice
Explain why office expenses are excluded from manufacturing accounts.
Level 3 – Examination Style Question
Direct Materials £15,000
Direct Labour £9,000
Factory Overheads £4,000Calculate:
a) Prime Cost
b) Cost of Production(4 marks)
📌 Additional structured questions are available in the 🎯 Question Papers + YouTube Explanation section.
∗ Additional structured questions are available in the Question Papers and YouTube Explanation section. Students should practise regularly and review video explanations for procedural clarity.
Enrolled students may submit questions from recognised textbooks, past examination papers or other genuine academic material for expert clarification through the Student Doubt Support facility.
Proficiency Check
Learn → Unlearn → Relearn
1. Can you distinguish direct and indirect production costs?
2. Can you calculate prime cost accurately?
3. Can you prepare manufacturing account calculations correctly?
If unsure, revise the worked examples.
Detailed Activity Solutions
Solution to Level 3 question
Level 3 Answer:
Prime Cost:
£15,000 + £9,000
= £24,000
Cost of Production:
£24,000 + £4,000
= £28,000
How This Topic Appears in the Examination
This topic commonly appears as:
• manufacturing account preparation
• production cost calculations
• classification of factory expenses
Examiners assess:
• correct classifications
• accurate calculations
• understanding of manufacturing costs
Self-Assessment Checklist
I understand manufacturing accounts
I can calculate prime cost
I can identify factory overheads correctly
I can calculate cost of production
I can answer exam questions confidently
Continue Your Preparation
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PREMIUM RESOURCES
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GUESS PAPERS
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VIDEO ON DEMAND
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