A manufacturing firm is a business that buys raw materials, converts them through a production process, and sells finished goods. Unlike a trading business that simply buys and sells, a manufacturing firm adds value through production.

Types of Manufacturing Costs

Prime Cost is the direct cost of producing goods and includes:

• Direct materials (raw materials that become part of the product)
• Direct labor (wages of workers directly involved in production)
• Other direct expenses

Factory Overhead Cost includes all indirect expenses of the factory, such as:

• Supervisor salaries
• Factory power and water
• Rent and rates
• Insurance
• Depreciation of plant and machinery

Types of Stock in Manufacturing

1. Raw Materials — Materials waiting to be used in production
2. Work in Progress — Partially completed goods at the end of an accounting period
3. Finished Goods — Goods ready for sale

Key formula: Production Cost = Prime Cost + Factory Overhead + (Opening Work in Progress − Closing Work in Progress)

A consignment arrangement occurs when a owner (called the consignor) sends goods to another party (called the consignee) to sell on their behalf. The consignee sells the goods but does not own them.

Key Features

• The consignor owns the goods until they are sold
• The consignee sells goods as an agent and earns commission
• Unsold goods belong to the consignor and are returned or held for future sale

Worked Example

ABC Ltd of Dar es Salaam sent 1,000 cases of goods costing Tsh 350,000 to XYZ Ltd. ABC Ltd paid delivery expenses of Tsh 10,000 and insurance of Tsh 2,000.

XYZ Ltd sold 800 cases for Tsh 6,300 each. Expenses incurred: storage Tsh 18,000, selling expenses Tsh 10,000. Commission is 5% of sales.

Calculations:

• Sales = 800 × 6,300 = Tsh 5,040,000
• Commission = 5% × 5,040,000 = Tsh 252,000
• Total deductions = 18,000 + 10,000 + 252,000 = Tsh 280,000
• Amount paid to ABC Ltd = 5,040,000 − 280,000 = Tsh 4,760,000

Value of unsold stock (200 cases):

• Cost: 200 × 350 = Tsh 70,000
• Add proportional expenses: (200÷1000) × (10,000 + 2,000 + 18,000) = Tsh 6,000
• Total value = Tsh 76,000

A partnership is a business arrangement where two or more persons (called partners) agree to cooperate and share profits and losses. In Tanzania, a partnership must have at least 2 and at most 20 partners (50 for professional services like doctors or lawyers).

Characteristics of a Partnership

1. Partners share profits and losses according to the partnership agreement
2. Each partner has unlimited liability — they are personally responsible for business debts
3. Partners have mutual agency — any partner can bind the business to contracts
4. The partnership has a limited life — it ends when a partner dies, resigns, or the agreement ends

Partnership Agreement (Deed of Partnership)

A written agreement that outlines:

• Profit and loss sharing ratio
• Duties and powers of each partner
• Interest on capital and drawings
• Salary or commission payable to partners
• How to value goodwill when a partner joins or leaves
• How to dissolve the business

Advantages and Disadvantages

A joint venture is a temporary business arrangement where two or more parties (called venturers) combine resources for a specific project or business activity. Unlike a partnership, a joint venture ends when the project is completed.

Key Features

• Parties pool resources (money, skills, equipment)
• A written contract outlines contributions, responsibilities, and profit-sharing
• Each venturer keeps their own records
• Profits and losses are shared as agreed in the contract

How Joint Venture Accounts Are Maintained

1. Memorandum Joint Venture Account — Summarizes all transactions to determine profit or loss (not part of formal double-entry)
2. Co-venturer's Personal Account — Each venturer records only their own transactions

Important Recording Rules

• Goods sent between venturers: Not recorded in the books
• Goods taken by a partner: Recorded in both personal and memorandum accounts
• Cash sent or received: Recorded only in the giver's and receiver's personal accounts
• Final settlement: After sharing profit or loss, the balance shows who owes or should be paid

A departmental store is a large retail business organized into different departments, each selling a different type of product (e.g., clothing, electronics, groceries). Each department operates as a separate unit but under one management.

Key Features

1. Centralized Management — All departments are controlled by one head office
2. Departmentalized Accounting — Each department keeps its own records of sales, purchases, and expenses
3. Inter-departmental Transfers — Goods may be transferred from one department to another at transfer prices
4. Common Expenses — Rent, electricity, and management costs are shared among departments

Why Departmental Accounting Matters

Each department is treated like a separate business to determine its profitability. This helps management decide which departments are performing well and which need improvement.

In Tanzania, understanding these business arrangements helps you make informed decisions as an entrepreneur or employee. For example, if you want to start a small maize milling business in Mwanza, you would need to understand manufacturing costs (raw maize, labor, electricity) to calculate your selling price. Alternatively, if you are employed as a bookkeeper at a supermarket in Arusha, departmental accounting helps determine which product line (groceries, household items, or clothing) is most profitable and should receive more shelf space.