Lesson Note on Manufacturing Account: Layout and Preparation with Trading Account for SSS 2

Class: Senior Secondary School 2 (SS2 / SSS 2)
Term: First Term
Week: 2
Age: 16 years
Duration: 45 minutes
Subject: Financial Accounting
Curriculum Theme: Accounting Principles
Previous Lesson: Manufacturing Account: Meaning, Purpose, Terms and Cost Computations.
Topic: MANUFACTURING ACCOUNT
Subject Matter: Layout or format of manufacturing account, preparation of manufacturing and trading account together

Specific Objectives

By the end of the lesson, pupils should be able to:

Cognitive Domain:

• Define a manufacturing account.
• Identify the various items included in a manufacturing account.
• Explain the layout or format of a manufacturing account.
• Describe how the cost of production is transferred from the manufacturing account to the trading account.

Affective Domain:

• Appreciate the importance of preparing manufacturing accounts for businesses.
• Develop an interest in understanding the cost of production.

Psychomotor Domain:

• Prepare a manufacturing account accurately.
• Prepare a combined manufacturing and trading account.
• Calculate the cost of production for a manufacturing business.

Social Domain:

• Participate actively in class discussions about manufacturing account items.
• Collaborate with peers to solve problems related to manufacturing account preparation.

Reference Materials

The following resources were used in planning this lesson:

• Senior Secondary Schools Education Curriculum
• State Unified Scheme of Work
• Financial Accounting for Senior Secondary Schools by O. A. Longe

Instructional Materials

The teacher will teach this lesson with the aid of:

• Chart showing the format of a manufacturing account.
• Flash cards demonstrating the layout and headings of manufacturing and trading accounts.
• Whiteboard and markers.

Rationale for the Lesson

This lesson helps pupils understand how manufacturing businesses calculate the cost of goods produced. It enables them to differentiate between manufacturing and trading activities and to prepare financial statements that reflect both production and sales performance.

Prerequisite/Previous Knowledge

Pupils should have prior knowledge of basic accounting concepts, ledger accounts, and the preparation of a simple trading account.

Lesson Content/Board Summary

Manufacturing Account

Definition of Manufacturing Account

A manufacturing account is a financial statement prepared by manufacturing businesses to determine the cost of goods produced during a specific accounting period. It shows all direct and indirect costs incurred in the production process.

Items in a Manufacturing Account

The main items included in a manufacturing account are:

• Opening Work-in-Progress: Goods that are partially completed at the beginning of the period.
• Raw Materials Consumed:
  • Opening Inventory of Raw Materials
  • Purchases of Raw Materials
  • Carriage Inwards on Raw Materials
  • Less: Closing Inventory of Raw Materials
• Direct Labour/Wages: Wages paid to workers directly involved in the production of goods.
• Direct Expenses: Expenses directly attributable to the production of a specific product (e.g., royalties, special packaging).
• Factory Overheads (Indirect Costs): All indirect costs incurred in the factory such as:
  • Indirect Wages
  • Factory Rent and Rates
  • Factory Depreciation (Plant & Machinery, Factory Building)
  • Factory Lighting and Heating
  • Repairs to Factory Machinery
  • Insurance of Factory
• Closing Work-in-Progress: Goods that are partially completed at the end of the period.

Layout of a Manufacturing Account

A typical manufacturing account is presented as follows:

(Name of Business) Manufacturing Account for the year ended (Date)

| Details | N | N |
|—|—|—|
| Opening Work-in-Progress | | XXX |
| Raw Materials Consumed: | | |
|   Opening Inventory of Raw Materials | XXX | |
|   Add: Purchases of Raw Materials | XXX | |
|   Add: Carriage Inwards | XXX | |
|   Less: Closing Inventory of Raw Materials | (XXX) | XXX |
| Direct Wages | | XXX |
| Direct Expenses | | XXX |
| PRIME COST | | XXX |
| Factory Overheads: | | |
|   Indirect Wages | XXX | |
|   Factory Rent & Rates | XXX | |
|   Depreciation of Plant & Machinery | XXX | |
|   Factory Lighting | XXX | |
|   Total Factory Overheads | | XXX |
|   Sub-total | | XXX |
| Less: Closing Work-in-Progress | | (XXX) |
| COST OF PRODUCTION | | XXX |

Linking Manufacturing Account to Trading Account

The “Cost of Production” figure obtained from the manufacturing account is transferred to the debit side of the trading account. It replaces the “Purchases” figure normally seen in a trading account for merchandising businesses.

Preparation of Manufacturing and Trading Account Together

When preparing both accounts, the Cost of Production from the Manufacturing Account becomes the main item for calculating the Cost of Goods Sold in the Trading Account.

Worked Example: Preparation of Manufacturing and Trading Account

The following information relates to XYZ Ltd. for the year ended 31st December 2023:

• Opening Work-in-Progress: N15,000
• Closing Work-in-Progress: N10,000
• Opening Inventory of Raw Materials: N20,000
• Purchases of Raw Materials: N80,000
• Closing Inventory of Raw Materials: N25,000
• Direct Wages: N40,000
• Factory Rent: N12,000
• Depreciation of Plant & Machinery: N8,000
• Indirect Wages: N10,000
• Sales: N250,000
• Opening Inventory of Finished Goods: N30,000
• Closing Inventory of Finished Goods: N45,000

Solution:

XYZ Ltd. Manufacturing and Trading Account for the year ended 31st December 2023

| Details | N | N |
|—|—|—|
| MANUFACTURING ACCOUNT SECTION | | |
| Opening Work-in-Progress | | 15,000 |
| Raw Materials Consumed: | | |
|   Opening Inventory of Raw Materials | 20,000 | |
|   Add: Purchases of Raw Materials | 80,000 | |
|   Less: Closing Inventory of Raw Materials | (25,000) | 75,000 |
| Direct Wages | | 40,000 |
| PRIME COST | | 130,000 |
| Factory Overheads: | | |
|   Factory Rent | 12,000 | |
|   Depreciation of Plant & Machinery | 8,000 | |
|   Indirect Wages | 10,000 | 30,000 |
|   Sub-total | | 175,000 |
| Less: Closing Work-in-Progress | | (10,000) |
| COST OF PRODUCTION (Transferred to Trading A/C) | | 165,000 |
| | | |
| TRADING ACCOUNT SECTION | | |
| Sales | | 250,000 |
| Cost of Goods Sold: | | |
|   Opening Inventory of Finished Goods | 30,000 | |
|   Add: Cost of Production | 165,000 | |
|   Less: Closing Inventory of Finished Goods | (45,000) | 150,000 |
| GROSS PROFIT | | 100,000 |

Teaching Methods/Instructional Techniques

Discussion, Lecture, Demonstration, Question and Answer, Visual Aids

Instructional Procedures

Step 1: Introduction

Time: 5 minutes
Teaching Skill: Set Induction
Teacher’s Activity: The teacher greets the pupils and asks them to recall what they know about the trading account and businesses that produce their own goods.
Pupils’ Activity: Pupils respond by mentioning that a trading account determines gross profit and that manufacturing businesses make products.
Learning Point: Pupils connect prior knowledge to the new topic of manufacturing accounts.

Step 2: Explanation of Manufacturing Account

Time: 10 minutes
Teaching Skill: Explanation/Definition
Teacher’s Activity: The teacher defines a manufacturing account as a statement used to calculate the cost of goods produced by a manufacturing business, distinguishing it from a trading account.
Pupils’ Activity: Pupils listen attentively and copy the definition into their notebooks.
Learning Point: Pupils understand the purpose and nature of a manufacturing account.

Step 3: Discussion of Items in a Manufacturing Account

Time: 7 minutes
Teaching Skill: Discussion/Questioning
Teacher’s Activity: The teacher leads a discussion on various items that make up the manufacturing account, such as raw materials, direct labour, and factory overheads.
Pupils’ Activity: Pupils participate by listing out items they think would be included, such as direct materials and factory rent.
Learning Point: Pupils identify and classify the different costs associated with manufacturing.

Step 4: Demonstration of Manufacturing Account Layout

Time: 7 minutes
Teaching Skill: Demonstration/Visual Aids
Teacher’s Activity: The teacher uses a chart or flash card to demonstrate the detailed layout and headings of a manufacturing account, explaining each section, including prime cost and factory overheads.
Pupils’ Activity: Pupils observe the layout on the chart and ask questions for clarification.
Learning Point: Pupils visualize and understand the structure and flow of a manufacturing account.

Step 5: Linking Manufacturing Account to Trading Account

Time: 8 minutes
Teaching Skill: Explanation/Integration
Teacher’s Activity: The teacher explains how the “Cost of Production” from the manufacturing account is transferred to the trading account, demonstrating how it replaces purchases in the calculation of cost of goods sold.
Pupils’ Activity: Pupils follow the explanation and observe how the two accounts are interconnected.
Learning Point: Pupils understand the relationship between the manufacturing and trading accounts.

Step 6: Preparation of Combined Manufacturing and Trading Account

Time: 8 minutes
Teaching Skill: Practical Application/Problem Solving
Teacher’s Activity: The teacher works through a simple example on the board, preparing a combined manufacturing and trading account with the pupils, highlighting the transfer of the cost of production.
Pupils’ Activity: Pupils actively participate by suggesting figures or steps and copy the example into their notebooks.
Learning Point: Pupils gain practical experience in preparing the combined accounts.

Step 7: Evaluation/Review

Time: 5 minutes
Teaching Skill: Questioning/Assessment
Teacher’s Activity: The teacher evaluates the learning by asking the following questions:

1. What is the primary purpose of preparing a manufacturing account?
2. List three items that form part of the prime cost in a manufacturing account.
3. How is the cost of production from the manufacturing account treated in the trading account?
4. Calculate the raw materials consumed if opening raw materials were N10,000, purchases N50,000, and closing raw materials N15,000.

Pupils’ Activity: Pupils answer orally and in writing.
Learning Point: Pupils demonstrate understanding of the lesson.

Step 8: Conclusion

Time: 3 minutes
Teaching Skill: Summarization
Teacher’s Activity: The teacher summarizes the key learning points about manufacturing accounts and their integration with trading accounts, assigning relevant homework.
Pupils’ Activity: Pupils listen to the summary and copy the assigned homework.
Learning Point: Pupils consolidate their understanding of the topic.

Lesson Keywords

• Manufacturing Account – An account prepared to ascertain the cost of goods produced.
• Cost of Production – The total cost of making a product, including prime cost and factory overheads.
• Prime Cost – The sum of direct materials consumed, direct labour, and direct expenses.
• Factory Overheads – Indirect costs incurred in the factory, such as indirect wages, factory rent, and depreciation of factory machinery.
• Work-in-Progress – Goods that are partially completed at the beginning or end of an accounting period.

Differentiation

For pupils who grasp the concepts quickly, the teacher can provide additional complex problems involving adjustments like abnormal gains/losses or more detailed factory overhead allocations. For pupils needing more support, the teacher can provide simplified templates or focus on identifying direct and indirect costs before moving to full account preparation.

Note for teachers using this lesson plan

Ensure pupils understand the distinction between direct and indirect costs. Emphasize the importance of the Cost of Production figure as the link between the manufacturing and trading accounts. Encourage pupils to practice preparing these accounts with various figures to build proficiency.