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.
Prepare a manufacturing account from the information below. This information was taken from the books of a manufacturing concern.
In this example, depreciation on plant is to be provided at 12.5% of cost.