Pick up the correct answer from the given choices(only one correct ans...
The manufacturing account is primarily prepared to determine the total cost of manufacturing goods during a specific period. It includes various costs associated with production, such as raw materials, labor, and overheads, which are crucial for understanding the cost structure of goods produced.
- A: to ascertain the profit or loss on the goods produced: This is incorrect. While the manufacturing account contributes to understanding profitability, it does not directly calculate profit or loss; that is done in the income statement after considering sales revenue.
- B: to ascertain the cost of the manufactured goods: This is correct. The primary purpose of the manufacturing account is to outline the costs involved in the manufacturing process.
- C: to show the sale proceeds from the goods produced during the year: This is incorrect. The manufacturing account does not show sales proceeds; it focuses solely on production costs.
- D: both (b) and (c): Since option C is incorrect, this option is also incorrect.
Therefore, the accurate purpose of the manufacturing account is best represented by option B.
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Pick up the correct answer from the given choices(only one correct ans...
Manufacturing account is prepared to know the cost of goods manufactured and it is related with production but not with profit/loss or sale.
Pick up the correct answer from the given choices(only one correct ans...
Explanation:
The manufacturing account is a financial statement that is prepared by a manufacturing company to determine the cost of goods manufactured during a specific period. It helps in ascertaining the cost of production and provides important information for determining the profitability of the business.
Purpose of preparing the manufacturing account:
The correct answer to the given question is option 'b' - "to ascertain the cost of the manufactured goods." Let's understand why this is the correct answer in detail:
1. Calculation of Cost of Goods Manufactured:
The manufacturing account helps in calculating the cost of goods manufactured by including the direct costs (such as raw materials, direct labor, and direct expenses) and indirect costs (such as factory overheads) incurred during the manufacturing process. These costs are debited to the manufacturing account and provide a comprehensive view of all the expenses associated with the production of goods.
2. Valuation of Work-in-Progress:
The manufacturing account also helps in determining the value of work-in-progress inventory at the end of the accounting period. This is important for inventory valuation purposes and to determine the accurate cost of goods sold.
3. Calculation of Gross Profit:
While the manufacturing account is primarily prepared to ascertain the cost of goods manufactured, it indirectly helps in calculating the gross profit of the business. The gross profit is calculated by deducting the cost of goods sold (which includes the cost of goods manufactured) from the net sales revenue.
4. Comparison and Analysis:
By preparing the manufacturing account, a manufacturing company can compare the cost of goods manufactured with the sales revenue generated. This analysis helps in evaluating the efficiency of the manufacturing process and identifying areas for cost reduction or process improvement.
Conclusion:
In conclusion, the manufacturing account is prepared to ascertain the cost of the manufactured goods. It provides a comprehensive view of all the costs incurred during the manufacturing process and helps in determining the cost of production, valuation of work-in-progress inventory, calculation of gross profit, and analysis of the manufacturing efficiency.