Prepare a manufacturer’s statement of profit or loss and financial position
Carry production cost into cost of sales, calculate gross profit and present raw materials, work in progress and finished goods correctly.
Exam scope and assessment notes
Cambridge International AS & A Level Accounting 9706, 2026–2028 syllabus, Version 2. These original lessons map all five Topic 3.1 objectives: financial-statement purpose; partnership changes; clubs and societies; manufacturing accounts; and limited-company financial statements and notes. Practice is self-checked, not an official Cambridge grade. Full timed Papers 1–4 and human subject-teacher review remain outstanding.
Before you begin
- Use the Topic 1.5 adjustment and statement skills: apply accruals, distinguish capital from revenue, reconcile balances, and keep each entity's owners' funds separate from income and cash.
Work on paper. Try each question before revealing help, and explain why your method works.
Quick readiness check
A manufacturer has opening finished goods $9,000, production cost $48,000 and closing finished goods $11,000. What is cost of sales?
What you will learn
- Calculate manufacturing cost of sales
- Prepare a manufacturer's statement of profit or loss
- Classify three inventory stages in the statement of financial position
Move from cost of production to cost of sales
For finished goods, cost of sales = opening finished-goods inventory + cost of goods completed and available for sale − closing finished-goods inventory. Add revenue and deduct cost of sales to calculate gross profit; then deduct selling, administration, finance and other relevant expenses to reach the period result in the format required.
Do not subtract raw-material or work-in-progress inventory again from cost of sales if it was already used to calculate production cost. Each inventory stage has a different place in the manufacturing statement and period-end statement of financial position.
Show inventory by production stage
Raw materials are inputs not yet issued to production; work in progress is partly completed production; finished goods are ready for sale. Present the closing balances separately when useful and measure inventory using the applicable requirements and stated information.
The accounting records should support a bridge from manufacturing account to the statement of profit or loss and statement of financial position. Check that opening inventory + production cost − closing inventory equals cost of sales and that each item is used once.
Pause and explain
Which inventory is partly completed at the reporting date?
Worked example
Cost of goods completed is $112,000, opening finished goods $18,000, closing finished goods $20,000, revenue $165,000 and operating expenses $42,000. Calculate cost of sales, gross profit and profit before any omitted finance or tax items.
Show the worked solution
- Cost of sales = $18,000 + $112,000 − $20,000 = $110,000.
- Gross profit = $165,000 − $110,000 = $55,000.
- After the stated operating expenses, profit is $55,000 − $42,000 = $13,000 before any other required items.
Answer Cost of sales is $110,000, gross profit $55,000 and profit before other omitted items $13,000.
Try a topic test
Choose Easy, Normal or Difficult. Save your answers and open worked review after finishing.
Test this topic →From guided practice to a new situation
Write your answer and reasoning first. Use a hint only if you are stuck. The model solution is for self-checking; your written work is not automatically marked.
A manufacturer has sales $240,000, opening finished goods $24,000, cost of goods completed $155,000, closing finished goods $19,000 and operating expenses $48,000. Calculate cost of sales, gross profit and operating profit before finance/tax.
Give me a hint
Calculate finished-goods cost of sales before the profit lines.
Compare my reasoning
- Cost of sales = $24,000 + $155,000 − $19,000 = $160,000.
- Gross profit = $240,000 − $160,000 = $80,000.
- Operating profit before finance/tax = $80,000 − $48,000 = $32,000.
Cost of sales $160,000; gross profit $80,000; operating profit before finance/tax $32,000.
Look for these in your work
- Cost of sales calculated
- Gross profit calculated
- Operating expense deducted
Closing raw materials are $11,000, WIP $10,000 and finished goods $20,000. The business also has other current assets of $17,000. What inventory figure and total current assets should appear if all balances are given at the required measurement?
Give me a hint
Add the three distinct inventory stages once, then add other current assets.
Compare my reasoning
- Total inventory = $11,000 + $10,000 + $20,000 = $41,000.
- Total current assets = inventory $41,000 + other current assets $17,000.
- Total current assets = $58,000.
Inventory is $41,000 and total current assets $58,000, assuming no valuation adjustment is required.
Look for these in your work
- All inventory stages included
- No stage double-counted
- Other current assets added
A factory manager proposes moving unsold finished goods into work in progress to improve the statement of financial position. Explain why this is not an acceptable presentation choice.
Give me a hint
Classify inventory by its actual stage at the reporting date and use supporting production records.
Compare my reasoning
- Finished goods have completed production and are ready for sale.
- Work in progress is only partly complete; the two categories represent different production stages and cost accumulation.
- Reclassifying inventory to change presentation would misstate operational status and could distort cost measurement and disclosures.
Present each inventory category according to its actual stage and applicable measurement. A desired balance-sheet outcome does not justify changing the classification.
Look for these in your work
- Finished goods defined
- WIP distinguished
- Faithful classification explained
Common mistakes
- Deducting closing finished goods twice
- Combining raw materials, work in progress and finished goods into one unexplained amount
What can you explain now?
How do you calculate finished-goods cost of sales?
Compare with the explanation
Opening finished goods plus production cost less closing finished goods
That formula matches goods available for sale to the inventory remaining.
After trying it yourself, choose your next review. This is your self-assessment.
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Make it stick
State the cost-of-sales formula for a manufacturer and name the three inventory stages that may appear in current assets.
If you needed the solution, close it and solve the problem again from a blank page. A correct answer is stronger when you can explain the reason for each step.