In manufacturing accounting, cost items and inventory adjustments must be categorized accurately to determine the total cost of finished goods. Match each manufacturing cost transaction or inventory item on the left with its corresponding accounting classification and functional purpose on the right.
- Patent royalty paid per unit of output manufacturedDirect expense added to direct materials and direct labour to form Prime Cost
- Depreciation of production line plant and machineryIndirect manufacturing expense classified under Factory Overheads
- Unfinished units remaining on the factory floor at the end of the accounting periodClosing Work-in-Progress deducted from cumulative manufacturing costs
- Sum of Prime Cost and Factory Overheads adjusted for opening and closing Work-in-ProgressCost of Production transferred to the Trading Account
Answer
Patent royalty per unit matches with direct expense forming Prime Cost; Depreciation of factory plant matches with indirect manufacturing expense under Factory Overheads; Unfinished units at period end match with closing Work-in-Progress deducted from manufacturing costs; Sum of Prime Cost and Factory Overheads adjusted for Work-in-Progress matches with Cost of Production transferred to the Trading Account.
Each terminology in manufacturing accounting has a distinct classification based on traceability and function. Patent royalties tied directly to volume are direct expenses contributing to Prime Cost. Factory plant depreciation is an indirect operational cost categorized as Factory Overheads. Closing Work-in-Progress represents incomplete inventory and is deducted from total manufacturing expenses. The resulting grand total represents the Cost of Production, which is credited to the Manufacturing Account and debited to the Trading Account.
Step-by-Step Solution
Key Concept
Classification of manufacturing costs (Direct Expenses, Factory Overheads, Work-in-Progress, and Cost of Production)
Estimated Time:2m 0s