Financial Statements for Manufacturing Businesses (Cambridge (CIE) IGCSE Accounting): Flashcards
Exam code: 0452 & 0985
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Which three financial statements does a manufacturing business prepare?
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Which three financial statements does a manufacturing business prepare?
A manufacturing account, which works out the total cost of making the goods.
Then a statement of profit or loss and a statement of financial position, as any other business would.
Why might a manufacturer buy in finished goods as well as making its own?
It gains more goods to sell without having to take on more workers.
It also frees the existing workforce to produce other products.
What are the drawbacks of a manufacturer buying in finished goods?
Buying them may cost more than making them.
The business also has no control over their quality, which it does have over its own production.
Define direct costs.
Direct costs are the costs that can be directly linked to producing the goods.
A cost that cannot be traced to the goods themselves is an indirect cost instead.
Complete the formula for the prime cost:
Prime cost = direct material + direct
+ direct .The completed formula is:
Prime cost = direct material + direct labour + direct expenses.
Direct expenses are production costs that are neither materials nor labour, such as royalties or the hire of machinery.
True or False?
The wages of a factory supervisor are a direct cost.
False.
A supervisor does not make the goods, so those wages are an indirect cost and part of the factory overheads. Only the wages of people who make, assemble or package the goods count as direct labour.
Define factory overheads.
Factory overheads are the indirect costs of production, the costs of keeping the factory running from day to day.
Factory rent, heating and lighting, depreciation of machinery and the wages of cleaners are all examples.
What three kinds of inventory does a manufacturing business hold?
Raw materials, work in progress and finished goods.
Each of the three has its own opening and closing balance.
Define work in progress.
Work in progress is the inventory of goods that are partly made and not yet finished.
Like the other two inventories, it is a current asset in the statement of financial position.
Which of a manufacturer's inventories appear in the manufacturing account?
The raw materials and the work in progress.
The finished goods appear in the statement of profit or loss instead, since they are what the business actually sells.
Define the cost of production.
The cost of production is the total cost of making the goods during the year.
It is the final figure that the manufacturing account is prepared to work out.
How do you work out the cost of materials consumed?
Start with the opening inventory of raw materials and add the purchases, less any purchases returns, plus the carriage inwards.
Then subtract the closing inventory of raw materials.
Complete the sentence about the manufacturing account:
Adding the
to the prime cost gives the total cost before the work in progress is adjusted for.The completed sentence is:
Adding the factory overheads to the prime cost gives the total cost before the work in progress is adjusted for.
True or False?
The closing work in progress is subtracted in the manufacturing account.
True.
The opening work in progress is added and the closing work in progress subtracted, so that only what was actually finished during the year reaches the cost of production.
A business runs both a factory and an office. Which of its expenses go into the cost of production?
Only the factory expenses.
The office expenses are not part of making the goods, so they are left for the profit and loss section instead.
Opening raw materials were $45 000, purchases $160 000 and closing raw materials $53 750. What is the cost of materials consumed?
$151 250.
The opening inventory plus purchases give $45 000 + $160 000 = $205 000, and $205 000 − $53 750 = $151 250.
The prime cost is $170 690, the factory overheads $48 120, and the work in progress moved from $6000 to $8000. What is the cost of production?
$216 810.
The prime cost plus the overheads give $218 810, and then $218 810 + $6000 − $8000 = $216 810.
What replaces purchases in a manufacturer's trading section, and where does it come from?
The cost of production, which is the final figure of the manufacturing account.
That is why the manufacturing account has to be prepared before the statement of profit or loss.
A manufacturer buys in some finished goods as well as making its own. How does that appear in the trading section?
Those purchases are added to the cost of production.
Together they make up the cost of everything the business had available to sell during the year.
Opening finished goods were $12 450, the cost of production $197 655 and closing finished goods $14 650. What is the cost of sales?
$195 455.
The opening inventory plus the cost of production give $210 105, and $210 105 − $14 650 = $195 455.
Complete the sentence about a manufacturer's current assets:
The inventories of raw materials, work in progress and finished goods are listed
, and a is shown.The completed sentence is:
The inventories of raw materials, work in progress and finished goods are listed separately, and a total is shown.
Closing inventories are raw materials $6860, work in progress $10 885 and finished goods $14 650. What is the total in current assets?
$32 395, with the three figures listed separately above it.
That is $6860 + $10 885 + $14 650 = $32 395.
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