FINANCIAL STATEMENT OF MANUFACTURING FIRMS ODAC 2.pptx
1. Learning objectives:
1. Define manufacturing firms and merchandizing firms
2. Explain briefly three prime costs and overhead costs
3. Define manufacturing costs and cost of production
4. Prepare the statement of manufacturing costs or firms,
statement of profit or loss and other comprehensive
income and statement of financial position.
FINANCIAL STATEMENT OF
MANUFACTURING FIRMS: TOPIC
2
2. Differentiate Merchandising and
manufacturing firms
Manufacturing Firms
A manufacturing firm is a business that uses parts,
components, or raw materials to produce finished
goods.
These finished goods are sold either directly to the
consumer or to other manufacturing firms that use
them as a component part to produce a finished
product.
Types of stock of manufacturing account
Raw material
Finished goods
Working –in progress
3. Cont...
Merchandising Firms
A merchandising firm is a business that
purchases finished products and resells them to
consumers.
Merchandising is a trading firm / business deals
with the buying and selling of manufactured
goods.
Manufacturing account is an account in the
general ledger which used to accumulate all the
manufacturing costs of goods completed by a
business during a period.
4. Identify elements of manufacturing
costs
• Prime costs: These include all direct
costs attributed to the production of any commodity
which are Direct materials, Direct labor, direct
expenses.
Direct materials are the components used in the
production process whose costs can be identified
on a per item-produced basis.
Direct labour represents production labour costs
that can be identified on a per item-produced basis
Direct Expenses- are expenses relating to
manufacture of a product or rendering a service
which can be identified or linked with the cost object
other than direct material cost and direct employee
cost
5. Cont...
• Factory overheads/ Indirect manufacturing costs: All
indirect costs attributed to the production are called
factory overheads, good example are factory power,
factory rent, depreciation of production machinery
etc.
Total Factory costs/ Production costs: This is the
sum of prime cost and production overhead,
6. Cont...
Other costs under manufacturing firms:
Administration expenses; Consist of such items
as manager’s salaries, legal and accountancy
charges, secretarial salaries and depreciation of
accounting machinery.
Selling and distribution expenses; Consists of
items such as sales staffs, salaries and
commission, carriage outwards, depreciation of
delivery vans, advertising and display expenses etc.
Financial charges: These are expenses items
such as bank charges and discount allowed.
7. Stocks/inventories for Manufacturing
Firms
Stock of Raw Material
It includes stock of raw materials which might have
been purchased by the manufacturer for using them
in the product manufacturing.
Stock of work in process
It includes goods in semi-finished form.
Stock of Finished goods
It includes stock of finished or completely processed
and are unsold at the end of period.
8. Financial Statement of Manufacturing
Firms
A complete set of financial statements comprises:
A statement of financial position as at the end of
the period;
A statement of profit or loss and other
comprehensive income for the period;
A statement of changes in equity for the period;
A statement of cash flows for the period;
Notes, comprising material accounting policy
information and other explanatory information;
9. A statement of profit or loss and
other comprehensive income for the
period
The purpose of the statement of profit or loss and
other comprehensive income (PLOCI) is to show
an entity's financial performance in a way that is
useful to a wide range of users.
The following slides present a format for PLOCI.
10. A statement of profit or loss and other comprehensive income for the period
Sales (gross) XX
Less: Sales returns xx
Net Sales xxx
Less; Cost of Sales
Opening stock xx
Add; Production cost xxxx
Less: Closing stock xx xxxxx
Cost of sales xxx
Gross Profit xxx
Add; other income xx
Total income xxx
Less;
Admistration expenses xx
Distribution expenses xx
Financial expenses xx xxx
Net profit before tax xxx
Tax for the period xx
Net profit after tax xxx
11. Cont...
Preparation of the statement of profit or loss and
other comprehensive income (PLOCI) requires
preparation of statement of manufacturing cost.
A manufacturing statement cost is the sum of
costs of all resources consumed in the process of
making a products eg,, all directs and
overheds;used to calculate the overall cost of
manufacturing or production cost for
manufacturing firm which is important component
is estimating cost of sales.
12. FORMAT OF THE STATEMENT OF MANUFACTUING COSTS
Inventory of Raw materials at start xxxx
Add: Purchases of Raw materials xxxx
Add: Carriage inwards for raw materials xxxx
Less: Return outwards of raw materials xxxx
Cost of Raw materials Available for Use xxxx
Less: Inventory of Raw material at close (xxxx)
Cost of Raw materials consumed xxxx
Add: Direct wages xxx
Other direct expenses ………………………………… xxx
Prime Costs xxxx
Add: Indirect Manufacturing Costs:
Fuel and power xxx
Indirect wages xxx
Rent of factory xxx
General factory expenses XXX
Insurance of factory building XXX
Depreciation of plant and machinery XXX XXX
Add: Opening Inventory of work in progress XX
Less: Closing Inventory of work in progress XX
Production cost of goods completed XXX
13. Cont...
Class examples-
statement of manufacturing cost
statement of profit or loss and other
comprehensive income
14. Cont...
A statement of financial position as at the end of
the period;
A statement of financial position sometimes referred
to as a balance sheet, is a part of a financial
statement that presents the position of assets,
liabilities, and equity in an organization.
It represents an undertaking's financial position as
on a particular day, being the last day of the
reporting period.
15. Statement of Financial Position
Non -current assets
Property, plant and equipment xx
Goodwill xx
Other intangible assets x
Investment in associates x
Available for sale investment x
Current assets
stock x
Trade debtors x
other current assets x
cash and cash equivalent x
Total assets xxx
Equity and Liabilities
Equity
Share capital xx
Retained earnings x
Total equity xxx
Non current liabilities
Long term borrowing xx
Deferred tax x
Long term provisions x
Total non current liabilities xxx
Current liabilities
Trade and other creditors xx
short term borrowing xx
short term provision xx
Total current liabilities xx
