So far, all previous posts deal with businesses that either sell goods (or products) to customers or services to customers. We have not been dealing with manufacturing company. A manufacturing company not only manufactures products but also sells them to other company. So, the existing preparation of accounts are not enough to record everything (the trading and profit and loss account and the balance sheet statement.) In this case, you will need to have another account drawn up; the manufacturing account.
In manufacturing account, you will need to be aware of new terms;
1) Direct costs – Costs that can be directly traced to making the products. Direct costs are categorised into direct materials, direct labour and direct expenses.
2) Indirect costs – Costs that cannot be directly traced to making the products.
3) Prime costs – All direct costs.
4) Factory overhead – Costs which occur in the factory…
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