1. The Production Account is provided to calculate all costs involved in the conversion of raw materials to finished goods. In short, the Production Account is prepared to calculate the cost of production.
2. The Production Account can be provided in the form of “T” or statement form
EXAMPLE:
From the following information, prepares Production Account for Best Quality Manufacturing Company:
Answer
Prensentation in “T” form
Various types of raw materials are used
1. If more than one kind of raw material is used in production, the Production Account shall be provided in the form of columns, that is one column for one raw material.
2. For example, in tomato sauce production, the raw material used may consist of tomatoes, sweets and preservatives, and empty bottles.
EXAMPLE:
The following details are taken from the books of a manufacturer who make tomato sauce.
Additional Information
1. Plant and machinery should be depreciated at 10% per annum.
2. The following expenses shall be divided between factory and office according to ratio 3: 2
Rental premise
Payment rate
Insurance
3. In carriage is charged equally on the purchased materials.
You are required to prepare Production Account for the half year ended June 30, 1998
Small Tools
1. Small tools are small appliances used in factory such as screws, nuts, and spanners.
2. These small tools are needed for the repair and maintenance of plant and machinery in the factory
3. These small tools are recorded in the Small Tools Account, not in Plant and Machine Accounts.
4. Any reduction in the value of these small tools due to damage or loss is considered part of the production cost and recorded in the Production Account as an overhead cost.
