Lesson Note on Manufacturing Account: Profit and Loss Preparation for SSS 2

Class: Senior Secondary School 2 (SS2 / SSS2)
Term: 1st Term
Week: 3
Age: 16 years
Duration: 45 minutes
Subject: Financial Accounting
Curriculum Theme: Financial Accounting Concepts
Previous Lesson: Manufacturing Account: Layout and Preparation with Trading Account.
Topic: MANUFACTURING ACCOUNT
Subject Matter: Preparation of profit and loss account, preparation of manufacturing, trading, profit and loss account

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.
• State the purpose of preparing manufacturing, trading, and profit and loss accounts.

Affective Domain:

• Appreciate the importance of accurate record-keeping in manufacturing businesses.
• Recognize the sequence of preparing manufacturing, trading, and profit and loss accounts.

Psychomotor Domain:

• Prepare a simple manufacturing account.
• Prepare a simple trading account.
• Prepare a simple profit and loss account.

Social Domain:

• Participate actively in discussions about items in a manufacturing account.
• Collaborate in understanding the formats of various financial statements.

Reference Materials

The following resources were used in planning this lesson:

• Senior Secondary Schools Education Curriculum
• State Unified Scheme of Work
• Oyedele, S.O. (2018). Financial Accounting for Senior Secondary Schools. University Press Plc.
• https://www.accountingcoach.com/manufacturing-overhead/explanation
• https://www.investopedia.com/terms/m/manufacturing-account.asp

Instructional Materials

The teacher will teach this lesson with the aid of:

• Charts showing the format of a manufacturing account.
• Flashcards with terminologies used in manufacturing, trading, and profit and loss accounts.
• Sample questions on manufacturing accounts.

Rationale for the Lesson

This lesson helps pupils understand how manufacturing businesses determine the cost of goods produced and their overall profitability. It is important for pupils to grasp how different accounts are prepared and linked, providing a complete financial picture for decision-making.

Prerequisite/Previous Knowledge

Pupils should have basic knowledge of final accounts for sole proprietorships, including the preparation of trading and profit and loss accounts.

Lesson Content/Board Summary

MANUFACTURING ACCOUNT

Definition of Manufacturing Account

A Manufacturing Account is a financial statement prepared by manufacturing businesses to determine the total cost of goods produced (Cost of Production) during an accounting period. It helps to separate the manufacturing activities from the trading activities of the business.

Items in a Manufacturing Account

The items typically found in a manufacturing account are categorized as follows:

• Direct Materials: Raw materials directly used in the production process (e.g., timber for furniture).
• Direct Labour/Wages: Wages paid to workers directly involved in the production of goods (e.g., factory machine operators).
• Direct Expenses: Expenses directly attributable to a specific product or batch (e.g., royalties paid per unit produced).
• Factory Overheads (Indirect Costs): All other manufacturing costs not directly linked to a specific product, but necessary for production (e.g., factory rent, depreciation of factory machinery, indirect wages, factory electricity).
• Work-in-Progress: Goods that are partially completed at the beginning (opening) or end (closing) of the accounting period.

Format of a Manufacturing Account

The manufacturing account is prepared to calculate the Cost of Production (or Cost of Goods Manufactured).

MANUFACTURING ACCOUNT FOR THE YEAR ENDED …

Debit Side (Expenses)

• Opening Work-in-Progress
• Raw Materials Consumed:
  • Opening Stock of Raw Materials
  • Add: Purchases of Raw Materials
  • Less: Returns Outwards
  • Carriage Inwards on Raw Materials
  • Less: Closing Stock of Raw Materials
• Direct Wages
• Direct Expenses
• Factory Overheads:
  • Indirect Wages
  • Factory Rent
  • Depreciation of Factory Plant & Machinery
  • Factory Power & Light
  • Factory Insurance

Credit Side (Income/Deductions)

• Closing Work-in-Progress
• Cost of Production (transferred to Trading Account)

(The difference between the total debit and credit sides, after accounting for work-in-progress, gives the Cost of Production.)

Preparation of Trading, Profit and Loss Account

After the Cost of Production is determined, it is transferred to the Trading Account. The sequence of preparing the final accounts for a manufacturing concern is:

1. Manufacturing Account (to determine Cost of Production)
2. Trading Account (to determine Gross Profit)
3. Profit and Loss Account (to determine Net Profit)
4. Balance Sheet (to show financial position)

TRADING ACCOUNT FOR THE YEAR ENDED …

Debit Side (Expenses)

• Opening Stock of Finished Goods
• Add: Cost of Production (from Manufacturing Account)
• Less: Closing Stock of Finished Goods
• Cost of Sales

Credit Side (Income)

• Sales
• Less: Returns Inwards

(Sales – Cost of Sales = Gross Profit)

PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED …

Debit Side (Expenses)

• Gross Loss (if any, from Trading Account)
• Selling and Distribution Expenses (e.g., advertising, sales salaries, carriage outwards)
• Administrative Expenses (e.g., office salaries, office rent, depreciation of office equipment)
• Financial Expenses (e.g., interest on loans)

Credit Side (Income)

• Gross Profit (from Trading Account)
• Other Incomes (e.g., discount received, rent received, profit on sale of assets)

(Gross Profit + Other Incomes – Total Expenses = Net Profit or Net Loss)

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 the final accounts prepared by a trading business.
Pupils’ Activity: Pupils respond by mentioning Trading and Profit and Loss Accounts.
Learning Point: Pupils connect previous knowledge to the new topic.

Step 2: Explanation of Manufacturing Account

Time: 7 minutes
Teaching Skill: Explanation/Definition
Teacher’s Activity: The teacher defines a manufacturing account and explains its purpose in determining the cost of goods produced.
Pupils’ Activity: Pupils listen attentively and take notes.
Learning Point: Pupils understand the concept and purpose of a manufacturing account.

Step 3: Items in a Manufacturing Account

Time: 8 minutes
Teaching Skill: Discussion/Listing
Teacher’s Activity: The teacher discusses the various items that make up a manufacturing account, using flashcards for terminologies like direct materials, direct labour, and factory overheads.
Pupils’ Activity: Pupils participate in the discussion by listing out manufacturing items and their examples.
Learning Point: Pupils can identify and categorize items relevant to manufacturing.

Step 4: Format of a Manufacturing Account

Time: 10 minutes
Teaching Skill: Demonstration/Guidance
Teacher’s Activity: The teacher presents a chart showing the format of a manufacturing account and guides pupils on how to prepare it, explaining each section.
Pupils’ Activity: Pupils observe the format, ask questions, and copy the format into their notes.
Learning Point: Pupils learn the structure and preparation steps of a manufacturing account.

Step 5: Preparation of Trading Account

Time: 5 minutes
Teaching Skill: Guidance/Application
Teacher’s Activity: The teacher explains how the Cost of Production from the manufacturing account is transferred to the trading account to calculate gross profit.
Pupils’ Activity: Pupils follow the explanation and understand the link between the accounts.
Learning Point: Pupils understand the sequence and transfer of figures between accounts.

Step 6: Preparation of Profit and Loss Account

Time: 5 minutes
Teaching Skill: Guidance/Application
Teacher’s Activity: The teacher further guides pupils on how to prepare the profit and loss account using the gross profit figure to determine the final net profit or loss.
Pupils’ Activity: Pupils observe and prepare a simple profit and loss account.
Learning Point: Pupils can complete the final accounts sequence to find net profit.

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. List three direct costs found in a manufacturing account.
3. State the purpose of preparing a manufacturing account.
4. Explain the sequence of preparing manufacturing, trading, and profit and loss accounts.

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 lesson by reiterating the importance of manufacturing accounts for determining cost of production and overall profitability, and assigns homework.
Pupils’ Activity: Pupils listen, ask final questions, and copy down the homework.
Learning Point: Pupils consolidate their understanding and prepare for further practice.

Lesson Keywords

• Manufacturing Account – An account prepared to determine the cost of goods produced.
• Cost of Production – The total cost incurred in producing goods.
• Direct Materials – Raw materials directly used in the production.
• Direct Labour – Wages paid to workers directly involved in production.
• Factory Overheads – Indirect costs related to the factory or production.
• Work-in-Progress – Goods partially completed.

Differentiation

For pupils who grasp the concepts quickly, the teacher will provide more complex scenarios or additional examples involving adjustments. For pupils who need more support, the teacher will provide simplified formats and step-by-step guidance, focusing on identifying key items before full preparation.

Note for teachers using this lesson plan

Teachers should ensure pupils have a strong grasp of basic final accounts before introducing manufacturing accounts. Emphasize the flow of costs from the manufacturing account to the trading account. Encourage practical exercises using simple figures to reinforce understanding of the formats and calculations.