(a) Explain with examples, the following components of cost in a Manufacturing Account:
i. Direct material cost;
ii. Direct labor cost
iii. Factory overhead
(b) Describe the three types of stocks in a manufacturing concern.
Explanation
(a) Cost Components of a Manufacturing Account
(i) Direct materials cost: This is the cost of physical inputs/raw materials that can easily be traced to the units produced, e.g. Cost of raw materials-(cost of wood for producing furniture, cost of fabric for sewing dresses: cost of leather for producing shoes; orange for producing juice, etc.)
(ii) Direct labor cost: This is the cost of human effort that is used in the processing of materials that can be traced to the finished product, e.g. wages of factory workers, etc.
(iii) Factory overhead: This refers to indirect production costs that are incurred in the processing of goods e.g factory rent; depreciation of plant and machinery; cost of lubricant, etc.
(b) Types of stock in a manufacturing concern
(i) Raw materials: These are unprocessed materials that constitute the initial input in the manufacturing process
(ii) Work in progress: These are partially processed materials in the production process that require further processing
(iii) Finished goods: These are fully completed/processed goods that are transferred to the store and held for sale