This is an accounting statement that helps in the preparation of final accounts of manufacturing concern of a firm. Certain manufacturing concerns do not prepare cost accounts since they do not have any cost office. These manufacturing concerns ascertain the manufactured cost of goods and also the manufacturing profit or loss during the year. Likewise, the cost of production of the manufactured goods and the profit or loss made by the manufacturing department is found out by the preparation of an account. So, when the required data are presented in a convenient form, it is called manufacturing account. Generally, the cost of production or the cost of goods manufactured is exhibited by the preparation of manufacturing account which helps in the calculation of manufacturing trading and profit and loss account.
The cost - effectiveness of activities related to manufacturing is better done with manufacturing account. Ascertaining the cost of goods, transferring this cost to the trading account is important. The trading account shows a gross profit. Manufacturing account is prepared to find out the cost of goods sold which includes direct expenses and it deals with raw materials and work in progress and not the finished goods. All the production expenses like depreciation on plant and machinery, salary to the factory manager, wages, etc are debited. The cost of finished goods includes direct expenses and the cost of raw materials. Manufacturing account format does not have any standardised format. The manufacturing account format must show quantities and values.
Manufacturing Account Format
Dr. (For the period ended . . . . . . . . . ) Cr.
Production accounts are accounts of cost or cost-sheet in a ledger account format, showing only the output during a given period, which is the total cost and per-unit cost incurred during the period and also the profit or loss for that particular period. Production accounts are nothing but the calculation of all costs involved during the conversion of raw materials to finished goods.
The actual factory overhead cost amounts that are not allocated to the production units are known as underapplied overhead. This kind of situation ascends when the accurate standard division amount of per unit of production does not equate to the actual overhead cost amounts incurred in a financial period, resulting in underapplied overhead.
Absorption Costing Unit Product Cost
Under the absorption costing unit product cost method or the managerial accounting method, all costs which are associated with the particular product are captured. Examples of entries which are accounted in this method are direct materials, direct labour, insurance and rent. For external reporting, absorption costing unit product cost uses GAAP or Generally Accepted Accounting Principles.
Preparation of Manufacturing Account
The cost of goods sold is found out by the preparation of manufacturing account. Manufacturing trading profit and loss account is maintained by all manufacturing organisations to help in the formation of final accounts of manufacturing concern. Manufacturing overhead account is calculated by the addition of indirect factory expenses like machine repairs, depreciation, insurance, factory supply, electricity, etc. Generally manufacturing overhead t account is prepared to have a standardized form of account. Non-manufacturing entities or what is called trading entities are generally involved in the purchase and also sales of goods at a profit. Usually, it is the manufacturing entities that prepare a manufacturing account and trading account, profit and loss account and balance sheet in addition. The cost of goods manufactured format includes the cost of raw materials and all the direct expenses.
Manufacturing Account in Tally
The preparation of manufacturing account in tally can be done in the following process:
Select Gateway of Tally followed by Inventory Vouchers and then click on F7.
Select the manufacturing journal.
Selection of the product to be manufactured should follow.
Selection of the bill material is next.
Selection of the godown where the storage of finished goods will be done will then be done.
Entering the production quantity will come next.
Entering the batch date, manufacturing date and expiry date is to follow.
Selection of the components like the name of the item, godown components, the number of raw materials and rate of raw materials will take place next and likewise, the amount will be displayed after the calculation.