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Difficulty: Very hardPreparation of Manufacturing Account and Cost of Production

Match each manufacturing accounting item or formula on the left with its correct accounting classification or term on the right.

  • Prime Cost + Factory Overheads + Opening Work-in-Progress - Closing Work-in-ProgressCost of Production
  • Raw Materials Consumed + Direct Wages + Royalties / Direct Production ExpensesPrime Cost
  • Factory Building Rent + Plant Depreciation + Factory Supervisor's SalaryFactory Overheads
  • Market Value of Finished Goods Produced - Cost of ProductionManufacturing Profit

Answer

The correct matches are: (1) Prime Cost + Factory Overheads + Opening WIP - Closing WIP matches Cost of Production; (2) Raw Materials Consumed + Direct Wages + Royalties matches Prime Cost; (3) Factory Building Rent + Plant Depreciation + Factory Supervisor Salary matches Factory Overheads; (4) Market Value of Finished Goods Produced - Cost of Production matches Manufacturing Profit.
Each item on the left represents a fundamental accounting equation or cost combination that uniquely aligns with its standard accounting terminology on the right in manufacturing account preparation.

Step-by-Step Solution

1
Determine the formula for Cost of Production
Prime Cost + Factory Overheads + Opening Work-in-Progress - Closing Work-in-Progress = Cost of Production
The cost of completed production requires combining prime costs with indirect factory expenses and adjusting for incomplete goods at the start and end of the period.
2
Identify the elements constituting Prime Cost
Raw Materials Consumed + Direct Wages + Royalties / Direct Production Expenses = Prime Cost
Prime cost is strictly the sum of directly traceable manufacturing costs.
3
Categorize indirect factory costs
Factory Building Rent + Plant Depreciation + Factory Supervisor's Salary = Factory Overheads
Expenses necessary to maintain factory operations that cannot be directly traced to individual products are classified as factory overheads.
4
Calculate Manufacturing Profit
Market Value of Finished Goods Produced - Cost of Production = Manufacturing Profit
When a firm transfers finished goods at market value, the differential over actual production cost measures the profitability of the manufacturing operation.

Key Concept

Classification and formulation of manufacturing account components and Cost of Production
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Topics

Preparation of Manufacturing Account and Cost of Production

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