LEVEL: FORM 6

SYLLABUS TOPIC: FINANCIAL ACCOUNTING

SUB –TOPIC: MANUFACTURING ACCOUNTS

COMPETENCE SKILLS

 Research

 Communication

 Problem Solving

BACKGROUND

Most small manufacturing businesses fail to access capital from financial institutions due to the fact that
they do not have well established accounting systems in place and they rarely prepare Financial
Statements to show the performance and financial position of their businesses. As someone who is soon
going to be a high school graduate, well versed with the theoretical aspects of accounting you have been
approached by a local entrepreneur manufacturing school desks to assist in setting up an accounting
system to track down manufacturing costs

CALA ACTIVITIES

Part A [identification and classification of costs]

Prepare a sheet identifying the costs that go into the manufacturing a single desk, classifying them into:

 Direct materials and the elements thereof, showing usage and material prices,
 Direct labour, showing the efficiency and labour rates
 Direct expenses if any.

In addition, determine the monthly total factory overheads and the breakdown thereof.

On your sheet, identify the number of desks manufactured in the previous month of operation together
with the units sold and inventories of finished goods balance at start and end of the month

On the same sheet, show the values of opening and closing inventories of

 Raw materials
 Work in progress

Identify the mark-up at which finished goods are transferred from the factory to the warehouse [15]

Part B [Preparation of Manufacturing Account]

Using information in Part A above, Prepare a Manufacturing account, showing clearly [15]

Part C [Calculation of cost per unit and valuation of closing inventory of finished goods]
Assuming that the firm uses the FIFO bases for valuing inventories, Calculate

(i) Total unit cost of manufacturing one desk [3]

(ii) The value of closing inventory of finished goods [3]

Prepare an extract from the statement of financial position showing valuation of inventories [4]

Explain how factory profit arise and explain how it is accounted for [5]

Explain how unrealised profit arise in manufacturing accounts, siting the relevant accounting concept,
explain how it is accounted for [5]