Manufacturing Accounts

Prime cost, factory overheads, the manufacturing account, work in progress, the transfer to the income statement and manufacturing profit.

Structure of cost

A manufacturer prepares a manufacturing account to find the cost of goods produced. Costs are grouped:

Direct (prime) costs — direct materials + direct labour + direct expenses.

Factory (indirect) overheads — factory rent, power, depreciation of machinery, supervisors' wages.

Work in progress — partly finished goods, adjusted at start and end.

$\text{Prime cost} = \text{Direct materials} + \text{Direct labour} + \text{Direct expenses}$

The cost build-up from prime cost to cost of production.

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