Manufacturing Account

mge

Would I be correct in presuming that the production overheads in the Manufacturing Account are the absorbed production overheads rather than the actual production overheads incurred?

Any help is much appreciated.

Vince22

Yes, that's right. I sat a simulation where they told you the actual incurred overheads for the period, the overhead absorption rate and the number of labour hours, and told you to post up the manufacturing and production overhead accounts. I posted the actual overheads to the debit side of prod overheads, and then worked out how much had been absorbed based on the hours worked. I posted this to the debit of the manufacturing (wip) account and the credit of the overheads. The difference is the amount under or over absorbed. This is the balancing figure in the overhead account.

mge

Many thanks for your reply Vince22.

However, I am not referring to the WIP account/s, but to the Manufacturing Account which is a year end financial statement, and has the form:

Prime Cost + Production Overheads + Opening WIP - Closing WIP

Vince22

My mistake. I was thinking of the costing account variously known as wip or process a/c. I am unfamiliar with this manufacturing a/c. Is that in unit 6?

mge

Thanks for your reply Vince.

I think that the Manufacturing Account is part of the unit 6 criteria. However, because it is also covered in some detail at Level 2 it doesn't seem to feature in the unit 6 exams. An example of a Manufacturing Account is:

http://www.howto.co.uk/img/chapters/2000/f0092-01.png

Then you add opening stock of Finished Goods less Closing Stock of Finished Goods to get Cost of Sales (for the Profit and Loss Account)

I'm having difficulty trying to reconcile it with what we're learning in unit 6 about an Integrated Book-keeping System where:

Direct Materials + Direct Labour + Direct Expenses + Absorbed Production Overheads are transferred to the WIP account/s.
Finished Goods are transferred From WIP Account to Finished Goods Account.
Finished Goods Sold are transferred from the Finished Goods Account to a Cost of Sales Account.
Cost of Sales is transferred to the Profit and Loss Account.

Presumably a Manufacturing Account is just a less thorough method of doing the above. I'm not sure whether a business using the above system would also keep a Manufacturing Account.

I'm a little confused!

Vince22

Ok, now I'm with you. From the link I see that the bottom line from the manufacturing account is transferred to the trading account, which would be the gross profit. I'm not sure either, if the factory overheads are budgeted overheads or actual - I would suspect the former. None of it is very clear. I think the integrated system is much better, because you can see exactly where the costs are coming from. I'm currently doing unit 6 and I've not come across this account, so I'm afraid I can't offer any more insight.

mge

Thanks for your help and for taking an interest Vince. Much appreciated

Good luck with unit 6! I'm also studying unit 6, but under the QCF scheme.