Download Notes – Bookkeeping Form 4 all tobic well summarized based in cureent syllabus.
CHAPTER ONE: ACCOUNTING FOR MANUFACTURING FIRMS
Introduction:
In this chapter you will learn about manufacturing costs and manufacturing accounts. The competencies developed will enable you to apply costing principles and behaviour in a manufacturing environment.
Manufacturing Firms:
Are those trading organizations dealing with processing raw materials into finished goods and selling them to the ultimate customers.
Examples of manufacturing firms include; food processing and cement making firms etc.
Merchandizing Firms:
Are the firms that deal with buying and selling already manufactured goods/ finished goods;
Business Firms Costs:
These are expenses to be incurred in production process. Is the amount of money needed to purchase all inputs in production.
Types of Business Firms Costs
There are two types of business firms costs which are
(a) Manufacturing costs
(b) Non-manufacturing costs
(a) Non-Manufacturing Costs:
These are expenses incurred by the manufacturing firms in the activities not associated with the production process.
In other words, these are costs incurred specifically in the trading section of the manufacturing firm. They include:
(i) Administrative expenses:
These consist of expenses such as manager’s salaries, secretarial salaries, legal and accountancy charges and the depreciation of office equipment.
(ii) Selling and distribution expenses:
These are expenses incurred in the process of selling, promoting and distributing the manufactured goods. For example; carriage on sales, advertisement, salesmen’s salaries, commission and depreciation of delivery vans.
(iii)Financial charges:
These are expenses directly involved with the movement of cash. They include bank charges, interest on loans, bad debts, depreciation of accounting machines and discount allowed
(b) Manufacturing Costs:
is the sum of all resources consumed in the process of manufacturing a product.
Types of manufacturing costs
There are two types of manufacturing costs, namely
(i) direct and indirect costs.
(ii) Indirect costs are also referred to as manufacturing overheads.
(i) Direct costs:
These are the costs that are directly traceable or attributable to the particular unit of goods being manufactured.
Direct costs are often related to variable costs, meaning that they change with production level. This category consists of direct materials, direct labour and direct expenses as explained below:
I. Direct materials costs:
These are the costs of all the materials that can be physically identified with a specific product manufactured.
Examples: the cost of leather used to manufacture shoes or hand bags; the cost of wood that is used to manufacture cupboard, and the cost of cotton for textile goods. Direct materials are also called raw materials.
II. Direct labour costs:
Are those labour expenses that can directly be traced to a manufactured product of a specific product.
Example, payments to workers who run machineries that cut, saw, shape and join the pieces of timber into tables.
III. Direct expenses:
Are those expenses that are directly associated with a cost object.
A cost object is any item for which costs are measured, including products, services, employees, and even entire departments. A direct expense varies directly with changes in the volume of a cost object.
Examples, fuel or power used to run the machines and royalties charged on the bases of production.
Note: The sum of direct materials cost, direct labour cost, and direct expenses, is known as prime cost.
(ii) Indirect Costs or Manufacturing overheads Costs:
These consist of all costs which occur in the factory where production is carried on but which cannot be easily traced to the units being manufactured. Sometimes, they are also referred to as factory overheads costs. As it is the case with direct costs, these costs can be classified into indirect materials, indirect labour and indirect expenses.
i. Indirect materials costs:
These are materials needed for the completion of the product but in a very small amount that makes the process of identifying them to a certain product is quite complicated.
Examples, costs of items such as cleaning materials, glue, thread and similar items.
ii. Indirect labour costs:
These are the salaries and wages paid to employees who are indirectly involved with the product.
Example, salary and wages paid to cleaners, crane drivers, shop supervisor, storekeeper and similar expenses.
iii. Indirect expenses:
This category includes all other costs besides direct costs, indirect materials costs and indirect labour costs.
These include expenses such as insurance, electricity, repairs, depreciation of plant and machinery used in the factory, water, factory rent and rates and similar items.
CHAPTER ONE: ACCOUNTING FOR MANUFACTURING FIRMS
CHAPTER TWO: CONSIGNMENT ACCOUNTING
CHAPTER THREE: ACCOUNTING FOR PARTNERSHIP
CHAPTER FOUR: ACCOUNTING FOR JOINT VENTURE
CHAPTER FIVE: DEPARTMENTAL ACCOUNTING
CHAPTER SIX: ELEMENTS OF AUDITING
TOPICAL REVISION QUESTIONS