The manufacturing account
A manufacturing account calculates the total cost of goods produced in a period. It starts with direct materials used, adds direct labour and direct expenses to get the prime cost, then adds factory overheads (indirect costs like factory rent and supervision) to reach the total cost of production.
Example 1: A business uses direct materials of ₦300,000, direct labour of ₦150,000, and direct expenses of ₦20,000. Find the prime cost.
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Departmental accounts
A business with multiple departments (e.g. a store with separate clothing and electronics departments) may prepare departmental accounts to see each department's individual profitability, not just the business's overall result. Costs that relate specifically to one department (like that department's staff wages) are charged directly to it; shared costs (like rent for the whole building) are apportioned between departments using a fair basis, such as floor space occupied.
Example 2: A shared electricity bill of ₦60,000 is apportioned between two departments based on floor space: Department A occupies 40% of the floor space, Department B occupies 60%. Find each department's share of the electricity cost.
Department A: . Department B: .