Production Cost

True Tamplin

Written by True Tamplin, BSc, CEPF®
Updated on November 11, 2021

Definition and Explanation

Production cost is also known as factory cost and cost of goods manufactured. It is the sum of prime cost and production overheads. This figure is presented in a special ledger account called the manufacturing account.

The figures disclosed in the trial balance of a manufacturing concern may relate to raw materials, direct labor, and factory overheads.

These figures are transferred from their respective accounts to the manufacturing account in the same way as figures relating to the purchase and sale of goods are transferred to the trading account.

The balance of the manufacturing account discloses the total cost of goods manufactured, which is then transferred to the trading account.

Example

Prepare a manufacturing account from the information below. This information was taken from the books of a manufacturing concern.

Manufacturing Concern Information

In this example, depreciation on plant is to be provided at 12.5% of cost.

Solution

Manufacturing Account Solution

True Tamplin, BSc, CEPF®

About the Author
True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True contributes to his own finance dictionary, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, his interview on CBS, or check out his speaker profile on the CFA Institute website.

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