Costing for a manufacturing enterprise

Cost accounting for manufacturing enterprise

The income statement of a manufacturer is not very different from the income statement of a merchandiser. The important characteristic of the income statement for a manufacturer is that it is supported by a schedule of cost of goods manufactured. This schedule is also known as the cost sheet. It presents all cost that have been used to produce finished goods namely direct materials, direct labour, and factory overheads. The cost sheet also presents inventories relating to direct materials and work-in-process, and finished goods. The cost of goods manufactured is then transferred to company's income statement for the assessment of the performance of an organisation as a whole. The following is a presentation of the costs in the cost sheet of goods manufactured by NEWALA Company Ltd. for the year ended 31st December, 2021

NEWALA Company Ltd. Schedule of Cost of Goods Manufactured For the Year Ended 31st December, 2021

Particulars	Amount (TZS)	Amount (TZS)
Opening stock at 1st January, 2021	20,000,000
Add: Purchases of direct materials	124,000,000
Cost of direct materials available for use	144,000,000
Less: Closing stock at 31st December, 2021	16,400,000
Add: Other direct costs		127,600,000
Direct labour cost	28,800,000
Direct expenses	40,000,000
Prime cost		176,000,000
Add: Production overheads:
Indirect manufacturing labour	36,000,000
Factory supplies	12,400,000
Factory rent	32,000,000
Depreciation of factory equipment	12,400,000
Depreciation of factory building	10,800,000
Production cost for the year to 31st December, 2021		300,000,000
Add: Work-in-progress at 1st January, 2021		80,000,000
Total production cost to account for		380,000,000
Less: Work-in-progress at 31st December, 2021		120,000,000
Cost of goods manufactured (to income statement)		260,000,000

Example

The following information relates to the PASUA Company Ltd. for the year for the ended December 31, 2021

Details	Amount (TZS '000')
Opening stock of raw materials	20,000
Opening stock of work in progress	10,000
Opening stock of finished goods	50,000
Raw materials purchased	500,000
Direct wages	380,000
Sales for the year	1,200,000
Closing stock of raw materials	75,000
Closing stock of work in progress	15,000
Closing stock of finished goods	35,000
Factory overhead	80,000
Direct expenses	50,000
Office and administrative overhead	60,000
Selling and distribution expenses	30,000

Required: Prepare PASUA Company Ltd.'s schedule of cost of goods manufactured and income statement for the year ended 31st December, 2021.

PASUA Company Ltd. Schedule of Cost of Goods Manufactured For the Year Ended 31st December, 2021

Particulars	TZS '000'
Opening inventory of raw materials	20,000
Add: Raw materials purchased	500,000
Cost of raw materials available for production	520,000
Less: Closing inventory of raw materials	75,000
Cost of direct materials used in production	445,000
Add: Other direct costs
Direct wages	380,000
Direct expenses	50,000
Prime cost	875,000
Add: Factory overhead	80,000
Production costs incurred during the year ended 31st December, 2021	955,000
Add: Work-in-progress at 1st January, 2021	10,000
Total production cost to account for	965,000
Less: Work-in-progress at 31st December, 2021	15,000
Cost of goods manufactured (to income statement)	950,000

Income Statement For the Year Ended 31st December, 2021

Particulars	TZS '000'
Sales	1,200,000
Less: Cost of goods sold	965,000
Opening stock of finished goods	50,000
Add: Cost of goods manufactured	950,000
Less: Closing stock of finished goods	35,000
Gross profit	235,000
Less: Office and administration overhead	60,000
Less: Selling and distribution expenses	30,000
Profit	145,000