Theory question 102
Manufacturing Accounts(a) Explain with examples, the following components of cost in a Manufacturing Account: (i) Direct material cost; (ii) Direct labour cost; (iii) Factory overhead.
(b) Describe the three types of stocks in a manufacturing concern.
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(a)(i) Direct material cost: cost of raw materials that become part of and can be traced to the product, e.g. wood for furniture, leather for shoes, fabric for dresses.
(ii) Direct labour cost: wages of workers who work directly on the product, e.g. machine operators, carpenters on the job.
(iii) Factory overhead: indirect production costs that cannot be traced to a unit, e.g. factory rent, factory power and lighting, depreciation of plant, supervisors' salaries, lubricants.
(b) Raw materials – materials bought but not yet put into production; work-in-progress – partly finished goods; finished goods – completed goods ready for sale.
Define each cost with a concrete example, then the three stocks.