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10 Cards in this Set
- Front
- Back
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Define:
Direct Materials Direct Labour |
Direct materials that are required in manufacturing the finished product.
Direct labour is the cost of the workforce engaged in production, eg machine operators. |
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Define:
Direct expenses Production overheads |
Direct expenses include any special costs that can be identified with each unit produced, eg patents or copyrights.
Production overheads are all the other costs of manufacture, eg wages of supervisors |
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What is Prime Cost?
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Prime cost is the basic cost of manufacturing a product before the addition of production overheads.
prime cost= direct materials + direct labour + direct expenses |
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What is Production Cost?
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Production cost is the factory cost of making the product after the addition of production overheads
production cost= prime cost + production overheads |
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What is the manufacturing account calculation?
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cost of raw materials used
add direct labour add direct expenses equals prime cost add production overheads adjust for value of any w.i.p equals production cost of goods completed |
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What is the layout of the trading and profit and loss account?
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Trading account: sales
less cost of sales equals gross profit P&L account: gross profit less non productive expenses equals net profit |
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What is the layout of the current assets section in the balance sheet for a manufacturing business?
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Balance sheet (extract)
current assets stock- closing stock of raw materials - closing stock of w.i.p - closing stock of finished goods |
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Why do some businesses value stock of finished goods at manufacturing cost plus manufacturing profit?
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To show more clearly the profit from the separate sections of the business
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Why is it necessary to account for unrealised profit and how do you calculate it if it's included in stock?
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Because under international standard #2, stocks are to be shown in the balance sheet at cost price/cost of production. The calculation is : stock figure (inc. unrealised profit) x Profit % / 100 + profit %
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How is unrealised profit treated in the balance sheet and the p&l account?
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In the profit and loss account the increase in unrealised profit is deducted from factory profit. In the balance sheet the unrealised profit figure at the end of year is deducted from the closing stock of finished goods.
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