Lesson Note on Manufacturing Account: Meaning, Purpose, Terms and Cost Computations for SSS 2

Class: Senior Secondary School 2 (SS2 / SSS 2)
Term: First Term
Week: 1
Age: 16 years
Duration: 45 minutes
Subject: Financial Accounting
Curriculum Theme: Financial Statements
Previous Lesson: .
Topic: MANUFACTURING ACCOUNT
Subject Matter: Meaning of manufacturing account, purpose, terminologies, computation of cost of raw materials available for use, computation of cost of raw materials consumed or used, computation of prime cost of production.

Specific Objectives

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

Cognitive Domain:

• Define manufacturing account.
• State the purpose of preparing a manufacturing account.
• Identify and explain the key terminologies used in a manufacturing account.
• Explain the computation of cost of raw materials available for use.
• Explain the computation of cost of raw materials consumed or used.
• Explain the computation of prime cost of production.

Affective Domain:

• Appreciate the importance of a manufacturing account in determining the cost of goods produced.
• Participate actively in class discussions on manufacturing account concepts.

Psychomotor Domain:

• Prepare a simple manufacturing account format.
• Compute the cost of raw materials available for use.
• Compute the cost of raw materials consumed or used.
• Compute the prime cost of production.

Social Domain:

• Collaborate with peers to identify and list items related to manufacturing accounts.
• Contribute effectively to group activities involving accounting computations.

Reference Materials

The following resources were used in planning this lesson:

• Senior Secondary Schools Education Curriculum
• State Unified Scheme of Work
• I.N. Iwuagwu, J.O. Akinduko, & P.O. Ejifoma. (2018). Financial Accounting for Senior Secondary Schools 2. Learn Africa Plc.
• https://www.accaglobal.com/gb/en/student/exam-support-resources/fundamentals-exams-study-resources/f3/technical-articles/manufacturing-accounts.html
• https://www.accountingcoach.com/manufacturing-cost/explanation

Instructional Materials

The teacher will teach this lesson with the aid of:

• Chart showing a sample manufacturing account.
• Flash cards displaying key terminologies in manufacturing account.
• Format of trading account and profit and loss account.

Rationale for the Lesson

This lesson helps pupils understand how manufacturing businesses determine the cost of producing their goods. It enables them to differentiate between manufacturing costs and other business expenses, which is essential for proper financial reporting and decision-making.

Prerequisite/Previous Knowledge

Pupils have prior knowledge of basic accounting concepts, including opening and closing stock, purchases, direct and indirect expenses, and the preparation of simple trading and profit and loss accounts.

Lesson Content/Board Summary

MANUFACTURING ACCOUNT

Meaning of Manufacturing Account

A manufacturing account is a financial statement prepared by manufacturing businesses to ascertain the total cost of goods produced during an accounting period. It details all direct and indirect expenses incurred in the factory for production.

Purpose of Manufacturing Account

The following are the purposes of preparing a manufacturing account:

• To determine the total cost of goods produced.
• To ascertain the prime cost of production.
• To calculate the factory cost or cost of production.
• To help in setting the selling price of manufactured goods.
• To provide information for management decision-making regarding production efficiency.

Terminologies Used in Manufacturing Account

• Raw Materials: These are the basic inputs used in the production process that are transformed into finished goods. Examples include timber for furniture, flour for bread.
• Direct Labour: This refers to the wages paid to workers directly involved in the production process, whose efforts can be directly traced to specific units of output. Examples include wages of machine operators, assembly line workers.
• Direct Expenses: These are expenses directly incurred for a specific product or service. They are easily identifiable with the production unit. Examples include royalty paid per unit produced, cost of special designs.
• Factory Overhead (Indirect Costs): These are all indirect costs incurred in the factory that cannot be directly traced to specific units of production. Examples include factory rent, factory insurance, depreciation of factory machinery, indirect wages.
• Work-in-Progress (WIP): These are partially completed goods that are still in the production process at the end of an accounting period. There can be opening work-in-progress and closing work-in-progress.

Computation of Cost of Raw Materials Available for Use

This calculates the total value of raw materials that could potentially be used in production during an accounting period.

Formula:

Opening Stock of Raw Materials + Purchases of Raw Materials + Carriage Inwards on Raw Materials = Cost of Raw Materials Available for Use

Example 1:

Opening Stock of Raw Materials = N20,000

Purchases of Raw Materials = N80,000

Carriage Inwards on Raw Materials = N5,000

Step 1: Identify opening stock, purchases, and carriage inwards.

Step 2: Add these figures together.

Cost of Raw Materials Available for Use = N20,000 + N80,000 + N5,000 = N105,000

Example 2:

Opening Stock of Raw Materials = N15,000

Purchases of Raw Materials = N60,000

Carriage Inwards on Raw Materials = N3,000

Step 1: Sum the opening stock, purchases, and carriage inwards.

Cost of Raw Materials Available for Use = N15,000 + N60,000 + N3,000 = N78,000

Computation of Cost of Raw Materials Consumed or Used

This determines the actual value of raw materials that were put into production during the period.

Formula:

Cost of Raw Materials Available for Use – Closing Stock of Raw Materials = Cost of Raw Materials Consumed

OR

Opening Stock of Raw Materials + Purchases of Raw Materials + Carriage Inwards on Raw Materials – Closing Stock of Raw Materials = Cost of Raw Materials Consumed

Example 1: (Using data from Example 1 above)

Cost of Raw Materials Available for Use = N105,000

Closing Stock of Raw Materials = N10,000

Step 1: Take the Cost of Raw Materials Available for Use.

Step 2: Subtract the Closing Stock of Raw Materials.

Cost of Raw Materials Consumed = N105,000 – N10,000 = N95,000

Example 2:

Opening Stock of Raw Materials = N30,000

Purchases of Raw Materials = N120,000

Carriage Inwards on Raw Materials = N7,000

Closing Stock of Raw Materials = N15,000

Step 1: Calculate Cost of Raw Materials Available for Use: N30,000 + N120,000 + N7,000 = N157,000

Step 2: Subtract Closing Stock of Raw Materials.

Cost of Raw Materials Consumed = N157,000 – N15,000 = N142,000

Computation of Prime Cost of Production

Prime cost represents the direct costs of production. It is the sum of direct materials, direct labour, and direct expenses.

Formula:

Cost of Raw Materials Consumed + Direct Labour + Direct Expenses = Prime Cost

Example 1: (Using data from Cost of Raw Materials Consumed Example 1)

Cost of Raw Materials Consumed = N95,000

Direct Labour (Wages) = N40,000

Direct Expenses = N8,000

Step 1: Identify Cost of Raw Materials Consumed, Direct Labour, and Direct Expenses.

Step 2: Add these three components together.

Prime Cost = N95,000 + N40,000 + N8,000 = N143,000

Example 2:

Cost of Raw Materials Consumed = N110,000

Direct Labour (Wages) = N55,000

Direct Expenses = N12,000

Step 1: Sum the direct material cost, direct labour cost, and direct expenses.

Prime Cost = N110,000 + N55,000 + N12,000 = N177,000

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 asks pupils what they understand by a manufacturing business and what kind of accounts such a business might prepare.

Pupils’ Activity: Pupils respond by mentioning businesses that produce goods and suggest accounts like Trading, Profit and Loss.

Learning Point: Pupils recall prior knowledge and are introduced to the concept of manufacturing accounts.

Step 2: Meaning and Purpose of Manufacturing Account

Time: 7 minutes

Teaching Skill: Explanation/Discussion

Teacher’s Activity: The teacher explains the meaning of a manufacturing account and discusses its key purposes using a chart as a visual aid.

Pupils’ Activity: Pupils listen, ask questions, and participate in the discussion by stating some purposes of the account.

Learning Point: Pupils understand what a manufacturing account is and why it is prepared.

Step 3: Terminologies Used in Manufacturing Account

Time: 8 minutes

Teaching Skill: Demonstration/Explanation

Teacher’s Activity: The teacher uses flash cards to demonstrate and explain different terminologies such as raw materials, direct labour, direct expenses, factory overhead, and work-in-progress.

Pupils’ Activity: Pupils identify the terms on the flash cards and attempt to explain them in their own words.

Learning Point: Pupils learn and understand the specific accounting terms related to manufacturing.

Step 4: Computation of Cost of Raw Materials Available for Use

Time: 7 minutes

Teaching Skill: Demonstration/Problem Solving

Teacher’s Activity: The teacher explains the formula for computing the cost of raw materials available for use and solves two illustrative examples on the board.

Pupils’ Activity: Pupils listen attentively, copy the formula and worked examples into their notebooks.

Learning Point: Pupils learn how to calculate the cost of raw materials available for use.

Step 5: Computation of Cost of Raw Materials Consumed or Used

Time: 7 minutes

Teaching Skill: Demonstration/Problem Solving

Teacher’s Activity: The teacher explains the formula for computing the cost of raw materials consumed and solves two illustrative examples on the board.

Pupils’ Activity: Pupils follow the steps and copy the formula and examples.

Learning Point: Pupils learn how to calculate the cost of raw materials consumed.

Step 6: Computation of Prime Cost of Production

Time: 6 minutes

Teaching Skill: Demonstration/Problem Solving

Teacher’s Activity: The teacher explains the formula for computing the prime cost and solves two illustrative examples on the board.

Pupils’ Activity: Pupils observe the calculations and record the information in their notes.

Learning Point: Pupils learn how to calculate the prime cost of production.

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. Define a manufacturing account.
2. State two purposes of preparing a manufacturing account.
3. List three terminologies used in manufacturing accounts.
4. Explain how to compute the cost of raw materials consumed.

Pupils’ Activity: Pupils answer orally and in writing.

Learning Point: Pupils demonstrate understanding of the lesson.

Step 8: Conclusion

Time: 5 minutes

Teaching Skill: Summarization/Assignment

Teacher’s Activity: The teacher summarizes the key learning points about manufacturing accounts and assigns homework from the textbook, asking pupils to practice computing the different cost elements discussed.

Pupils’ Activity: Pupils listen to the summary and copy down the homework assignment.

Learning Point: Pupils consolidate their understanding and are encouraged to practice independently.

Lesson Keywords

• Manufacturing Account – A statement showing the cost of producing goods in a manufacturing business.
• Raw Materials – Basic inputs converted into finished products.
• Direct Labour – Wages paid to workers directly involved in production.
• Direct Expenses – Expenses directly attributable to a specific product.
• Factory Overhead – Indirect factory costs not directly traceable to products.
• Work-in-Progress – Partially completed goods at an accounting period end.
• Prime Cost – The sum of direct materials, direct labour, and direct expenses.

Differentiation

The teacher will provide additional simplified examples for slower learners and more complex problems for fast learners. Group activities will encourage peer learning and support for all pupils.

Note for teachers using this lesson plan

Ensure that pupils understand the distinction between direct and indirect costs as this is fundamental to manufacturing accounts. Emphasize the flow of costs from raw materials to finished goods. Encourage pupils to practice numerous computational examples to solidify their understanding.