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| Words: 943 | Submitted: 07-May-2011
97.5% | Number of pages: 2 | Filetype: Word .doc
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DescriptionEssay is about financial statements - manufacturing accounts
1.THERE IS DIRECT SYNERGY between the “workings” for the top section of the Income Statement (i.e the TRADING ACCOUNT) for an entity which buys in stock and then sells it and an entity which manufactures stock for sale and then sells it.
Entity selling purchased stock Entity selling manufactured stock
Opening Inventory (bought in stock) Opening Inventory (finished goods made)
Cost of Purchases (of bought in stock) Cost of (additional) finished goods PRODUCED
Less: Closing Inventory (bought in stock) Less: Closing Inventory (finished goods made)
= Cost of Sales = Cost of finished goods SOLD
The Manufacturing Account allows us to calculate the “Cost of (additional) finished goods PRODUCED”. That number is then taken to the “Workings” for the Income Statement as above in order to then calculate the “Cost of finished goods SOLD”.
2.SO WHAT DO WE NEED TO KNOW in order to calculate the cost of the finished goods we’ve (made) produced?
We’ll need some Labour. We’ll also need some Materials. We’ll certainly incur some Expenses.
3.DIRECT vs INDIRECT
DIRECT Labour, Materials and Expenses are costs which we know for sure have wholly gone into producing what we’ve manufactured “In-House”.
INDIRECT Labour and Expenses are also called OVERHEADS. They are things which cannot be said to have wholly gone directly into producing what we’ve ...
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