NOTES


CA-Foundation > Principles and Practice of Accounting > Preparation of Final Accounts of Sole Proprietors - Final Accounts of Manufacturing Entities (Old & New)

Differentiate between Direct Manufacturing Expenses and Indirect Manufacturing expenses



Ans.

Direct manufacturing expenses are costs, other than material or wages, which are incurred for a specific product or saleable service.

Examples of direct manufacturing expenses are (i) Royalties for using license or technology if based on units produced, (ii) Hire charge of the plant and machinery used on hire, if based on units produced, etc.When royalty or hire charges are based on units produced, these expenses directly vary with production.

Indirect Manufacturing expenses are also called Manufacturing overhead, Production overhead, Works overhead, etc. Overhead is defined as total cost of indirect material, indirect wages and indirect expenses.

Overhead = Indirect Material + Indirect Wages + Indirect Expenses

Indirect material means materials which cannot be linked directly with the units produced, for example, stores consumed for repair and maintenance work, small tools, fuel and lubricating oil, etc.

Indirect wages are those which cannot be directly linked to the units produced, for example, wages for maintenance works, holding pay, etc.

Indirect expenses are those which cannot be directly linked to the units produced, for example, training expenses, depreciation of plant and machinery, depreciation of factory shed, insurance premium for plant and machinery, factory shed, etc. Accordingly, indirect manufacturing expenses comprise indirect material, indirect wages and indirect expenses of the manufacturing division.


Next


Notes of Preparation of Final Accounts of Sole Proprietors - Final Accounts of Manufacturing Entities (Old & New)



  1. Differentiate between Direct Manufacturing Expenses and Indirect Manufacturing expenses


    see in detail

  2. Mr. Pankaj runs a factory which produces motor spares of export quality. The following details were obtained about his manufacturing expenses for the year ended on 31.3.2016.

     

     

    Rs.

    W.I.P.

    - Opening

    3,90,000

     

    - Closing

    5,07,000

    Raw Materials

    - Purchases

    12,10,000

     

    - Opening

    3,02,000

     

    - Closing

    3,10,000

     

    - Returned

    18,000

     

    - Indirect material

    16,000

    Wages

    - direct

    2,10,000

     

    - indirect

    48,000

    Direct expenses

    - Royalty on production

    1,30,000

     

    - Repairs and maintenance

    2,30,000

     

    - Depreciation on factory shed

    40,000

     

    - Depreciation on plant & machinery

    60,000

    By-product at

    selling price

     

    20,000

    You are required to prepare Manufacturing Account of Mr. Pankaj for the year ended on 31.3.2016.


    see in detail

  3. Following are the Manufacturing A/c, Creditors A/c and Trading A/c provided by Ms. Shivi related to 2016-17. There are certain fi gures missing from these accounts.

    Raw Material A/c

    Date

    Particulars

    Amount

    Rs.

    Date

    Particulars

    Amount

    Rs.

     

    To Opening Stock A/c

    1,00,000

     

    By Raw Material Consumed

    ?

     

    To Creditors A/c

    ?

     

    By Closing Stock A/c

    ?

     Creditors A/c

    Date

    Particulars

    Amount

    Rs.

    Date

    Particulars

    Amount

    Rs.

     

    To Bank A/c

    22,00,000

     

    By Balance b/d

    15,00,000

     

    To Balance c/d

    6,00,000

     

     

     

     Manufacturing A/c

    Particulars

    Amount

    Rs.

    Particulars

    Amount

    Rs.

    To Raw Material Consumed

    ?

    By Trading A/c

    17,94,000

    To Wages

    3,50,000

     

     

    To Depreciation

    2,00,000

     

     

    To Direct Expenses

    2,44,000

     

     

     

    Additional Information:

         1)    Purchase of machinery worth Rs.10,00,000 has been omitted. Machinery are chargeable at a depreciation rate of 10%.

              2)Wages include the following

    Paid to Factory Workers – Rs.3,00,000

    Paid to labour at office – Rs.50,000

    3) Direct Expenses include following:

    Electricity charges of Rs.80,000 of which 30% pertained to offi ce.

    Fuel Charges of Rs.20,000

    Freight Inwards of Rs.35,000

    Delivery charges to customers – Rs.20,000.

    You are required to prepare revised Manufacturing A/c, and Raw Material A/c.


    see in detail


CA-Foundation - Principles and Practice of Accounting:

CA-Foundation: