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Manufacturing entities prepare a separate Manufacturing Account in addition to Trading Account, Profit and Loss Account and Balance Sheet. It is prepared by enterprises engaged in manufacturing activities.

Uses of manufacturing account

  • It helps in determining the manufacturing costs of finished goods for assessing the cost effectiveness of manufacturing activities
  • It shows the total cost of manufacturing finished products with appropriate classifications and elements of such cost. Therefore, it is debited with
    – Cost of materials consumed
    – Manufacturing wages
    – Manufacturing expenses
  • It provides details of factory cost and facilitates reconciliation of financial books with cost records

Classification of manufacturing costs


Items to be shown on the debit side of Manufacturing Account

  • Raw materials consumed
  • It can be calculated by using the following formula:

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  • Work in progress: It refers to the stock of unfinished goods. Opening work in progress is debited to Manufacturing Account
  • Direct manufacturing expenses: These are expenses which are incurred for a specific product or saleable service


    Example: Royalty for using licence or technology (if based on units produced) Hire charges of plant used on hire (if based on units produced)

  • Indirect manufacturing expenses: These are called as manufacturing overheads.

    ‘Overhead’ is the sum of total cost of indirect material + indirect wages + indirect expenses


    Example: Production overheads, works overheads etc.

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