A manufacturing account works out what it cost a business to make its goods. It sorts the costs of a factory into materials, wages and overheads, then produces one figure, the factory cost of production, which moves into the income statement. Check the current Cambridge IGCSE Accounting 0452 syllabus page for the exact content points in your exam year.
What should you already know?
You need the trading layout from inventory and cost of sales, because the last step of a manufacturing account reuses it. You also need the idea of capital and revenue treatment and of depreciation, since machine depreciation is a common factory cost. If you can work out cost of sales for a shop and say why depreciation is an expense, you are ready.
An orienting example
Kilang Kasut Bestari makes shoes. For the year, the owner gives these figures in RM.
| Item | RM |
|---|---|
| Raw materials, opening | 4,000 |
| Raw materials purchased | 30,000 |
| Raw materials, closing | 5,000 |
| Direct wages | 18,000 |
| Indirect wages | 6,000 |
| Factory rent | 5,000 |
| Factory power | 4,000 |
| Machine depreciation | 3,000 |
| Work in progress, opening | 2,500 |
| Work in progress, closing | 3,500 |
Step 1, raw materials used: 4,000 + 30,000 − 5,000 = RM 29,000.
Step 2, prime cost: 29,000 + 18,000 = RM 47,000.
Step 3, factory overheads: 6,000 + 5,000 + 4,000 + 3,000 = RM 18,000.
Step 4, factory cost of production: 47,000 + 18,000 + 2,500 − 3,500 = RM 64,000.
Now suppose opening finished goods were RM 6,000 and closing finished goods RM 7,000. Cost of sales is 6,000 + 64,000 − 7,000 = RM 63,000. Every lesson in this module is one part of that chain.
In what order should you study the lessons?
- Distinguish direct and indirect production costs: start here, because every later figure depends on putting each cost in the right group.
- Calculate prime cost: builds the first subtotal from materials used and direct wages.
- Adjust for work in progress: adds overheads, then corrects for goods that are only half made.
- Transfer production cost to the trading calculation: shows how the factory cost replaces purchases in cost of sales.
- Explain why a factory cost is not necessarily an office expense: handles shared costs such as rent, and why the split changes profit.
After these, try the manufacturing accounts practice set. The double-entry and ledger trainer helps you check where entries land, and the percentage-base explorer is useful when a question gives a share of a cost as a percentage. When you are ready for the next module, continue to clubs and societies.
What are the common traps?
- Treating every factory wage as direct. Supervisors and cleaners are indirect, so they sit in factory overheads.
- Using purchases as materials used. Adjust for opening and closing raw materials first.
- Adding closing work in progress. Closing work in progress is subtracted, opening is added.
- Putting office costs in the factory. Salaries of the office staff and delivery costs belong in the income statement.
- Forgetting finished goods. Factory cost is not cost of sales until opening and closing finished goods are used.
How should you use the practice set?
Write each account in full on paper before opening the worked answer. Compare every subtotal, not only the last line, because a sorting mistake early on can survive to the end.
If the same slip returns, log it in the mistake log and retest queue and try a fresh question a few days later. Students who want someone to follow each step as they work can consider online one-to-one Accounting tuition, where an assigned teacher can see where a method breaks down.