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Difficulty: MediumPreparation of Manufacturing Account and Cost of Production

Match each component of the Manufacturing Account on the left with its correct accounting valuation formula or descriptive definition on the right.

  • Cost of Raw Materials ConsumedOpening Stock of Raw Materials + Purchases + Carriage Inwards - Closing Stock of Raw Materials
  • Prime CostCost of Raw Materials Consumed + Direct Wages + Direct Factory Expenses
  • Factory OverheadsIndirect Factory Wages + Factory Rent + Factory Machinery Depreciation + Indirect Materials
  • Cost of ProductionPrime Cost + Factory Overheads + Opening Work-in-Progress - Closing Work-in-Progress

Answer

Cost of Raw Materials Consumed matches Opening Stock of Raw Materials + Purchases + Carriage Inwards - Closing Stock of Raw Materials; Prime Cost matches Cost of Raw Materials Consumed + Direct Wages + Direct Factory Expenses; Factory Overheads matches Indirect Factory Wages + Factory Rent + Factory Machinery Depreciation + Indirect Materials; Cost of Production matches Prime Cost + Factory Overheads + Opening Work-in-Progress - Closing Work-in-Progress.
Each manufacturing accounting term is correctly paired with its defining formula. Raw materials consumed aggregates direct raw material movements. Prime cost sums all direct inputs. Factory overheads accumulate indirect factory costs. Cost of production incorporates prime cost, factory overheads, and work-in-progress adjustments.

Step-by-Step Solution

1
Identify the formula for Direct Materials Consumed
Opening stock of raw materials plus purchases plus carriage inwards minus closing stock of raw materials.
Carriage inwards adds to the cost of raw material acquisition, while closing inventory is subtracted to determine net raw material used in production.
2
Determine Prime Cost composition
Sum of all direct costs (Direct Raw Materials + Direct Wages + Direct Expenses).
Prime Cost includes only direct costs traceable directly to units produced.
3
Identify Factory Overheads
Aggregation of indirect manufacturing costs such as indirect labor, factory building rent, factory power, and plant depreciation.
Overheads represent operational costs essential for factory operations but not directly assignable to specific finished goods.
4
Formulate the total Cost of Production
Prime Cost + Factory Overheads + Opening Work-in-Progress - Closing Work-in-Progress.
Cost of production measures the total cost transferred to the trading account for completed goods during the period.

Key Concept

Preparation of Manufacturing Account and Cost of Production
Estimated Time:1m 30s
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Preparation of Manufacturing Account and Cost of Production

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