Revenue

Revenue Definition The amount that a business earns by selling goods or providing services is called revenue. Explanation Remuneration for goods sold or services provided is called revenue. It includes both cash received for goods sold and services rendered and accounts receivable for goods sold and services rendered on credit. Revenues that appear in the trial balance are of the following two kin…

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Manufacturing Business

What Is a Manufacturing Account? The Manufacturing account can be used by businesses that produce products or goods. It is a tool that companies can use to help manage the finances and inventory of a manufacturing company. This account can track production costs, materials used, and inventory levels. Manufacturing accounts can also help businesses manage their cash flow and budget for future produ…

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Total Cost of Manufacturing

The total cost of manufacturing a product has three elements, namely: Raw materials used (or direct materials cost) Direct labor (or direct wages) Production overhead (or factory overhead or works overhead) A manufacturing business maintains separate raw materials purchase accounts for each type of raw material that its factory uses. Similarly, it maintains separate ledger accounts for direct wage…

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Direct and Indirect Materials Cost

Definition and Explanation Direct Materials Cost A direct material is any commodity that enters into and becomes a constituent element of a product. Thus, cotton is a direct material for textile goods, leather for shoes, wood (or steel or plastic) for furniture, and so on. Some products have more than one direct material. For example, biscuits are made not only of flour but also sugar, milk, oils,…

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Direct and Indirect Labor Cost

What Is Labor? Labor is defined as the cost of services involving human resources. Noteworthily, labor is also the most mobile factor in production. There are two broad types of labor: Direct labor Indirect labor Direct Labor Direct labor refers to labor that is directly involved in the production of a good. For example, in a small carpentry business, the efforts of individuals who cut, join, poli…

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Prime Cost

Prime Cost: Definition Prime cost is the aggregate of direct material cost, direct labor cost, and direct expenses. It is also known as ‘flat cost,’ ‘first cost,’ or ‘direct cost.’ Once the cost of raw materials has been ascertained, the cost of direct labor and direct expenses is known. The prime cost can be calculated by adding up the three figures. Prime Cost: Explanation Prime costs are the su…

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Factory Overheads

Definition of Factory Overheads Factory overheads are the aggregate of indirect materials, labor, and other costs that cannot be identified conveniently with the articles produced or services rendered. The benefits arising from these costs cannot be associated with a specific cost unit. Instead, they are apportioned across the cost units on an equitable basis. Overheads are an element of cost but…

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Production Cost

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…

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Vertical Presentation of Manufacturing Account

Manufacturing accounts are often presented in a vertical format. This way of preparing final accounts is regarded as advantageous and is, therefore, in common use today. An example of a manufacturing account in vertical form is shown below.

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Differences Between Trading and Manufacturing Concerns

This article outlines the differences between trading and manufacturing concerns. Nature of Purchases Trading Concern: These businesses purchase merchandise in a ready shape to be sold. For example, a furniture dealer purchases furniture from a manufacturer and sells it to customers without additional processing. Manufacturing Concern: Manufacturing institutions use labor and machinery to convert…

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