The manufacturing account gives information on all the expenses and costs incurred in the preparation of the goods to be sold. This includes the expenses that are met in the path of preparing the goods but not the finished goods. Any type of expenses including the cost of raw materials, the cost of machines and their maintenance, the salaries and wages of both skilled and unskilled workers which are considered as the direct expenses of the manufacturing. Even the depreciation of the assets like costly machines and plants are also included under this account. This statement of account is very important for a manufacturing firm or plant to get an idea of the total profit or loss incurred throughout the year in the total process. The effectiveness and fixing of the cost price of the finished goods are based upon the statement of the manufacturing account. The statement of the manufacturing account does not have a prescribed format. It is only important to show the quantities and values clearly.
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 that are accounted in this method are direct materials, direct labor, 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 the manufacturing account. Manufacturing trading profit and loss accounts is maintained by all manufacturing organizations to help in the formation of final accounts of a manufacturing concern. The 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.
The 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 the rate of raw materials will take place next and likewise, the amount will be displayed after the calculation.