Prepare a manufacturing account and transfer production cost
Present a manufacturing account and carry cost of production into the statement of profit or loss without mixing factory and period expenses.
Cambridge IGCSE Accounting 0452 / (9–1) 0985, 2027–2029 Version 1. These lessons follow the 2027–2029 syllabus only; the separate 2026 syllabus update is not yet mapped. Written practice is self-checked, not an official Cambridge grade. Full timed-paper practice and human subject-teacher review remain pending.
Before you begin
- No previous accounting study is assumed. Keep the business, transaction and accounting period in view, and distinguish a resource, a claim and a performance result.
Work on paper. Try each question before revealing help, and explain why your method works.
Quick readiness check
A factory pays sales commission. Where is it normally recorded?
What you will learn
- Prepare a manufacturing account in a suitable order
- Transfer cost of production to cost of sales
- Distinguish factory cost from selling and administrative expenses
Use the manufacturing account sequence
Start with direct materials used and direct labour to calculate prime cost. Add factory overheads for factory cost, then adjust for opening and closing work in progress to calculate cost of production.
The manufacturing account summarises the cost of completed production for the period. It does not itself determine profit; units produced may remain in inventory rather than being sold.
Link manufacturing to trading and period statements
Transfer cost of production to the trading section as the cost of goods manufactured, then calculate cost of sales using opening finished goods, production cost, purchases of finished goods if supplied, and closing finished goods.
Selling, distribution and administrative expenses are deducted after gross profit. Apply the relevant year-end adjustments from section 5.1 and keep inventory and work-in-progress values consistent with the stated data.
Pause and explain
Opening finished goods are $4,500, cost of production $26,000 and closing finished goods $5,200. Find cost of sales.
Worked example
Cost of production is $41,200. Opening finished goods are $6,000, closing finished goods $7,500 and sales revenue $72,000. Other income is $500, selling expenses $3,000 and administration expenses $6,000. Calculate cost of sales, gross profit, profit for the year and the closing finished-goods asset.
Show the worked solution
- Cost of sales = opening finished goods 6,000 + cost of production 41,200 − closing finished goods 7,500 = $39,700.
- Gross profit = sales 72,000 − cost of sales 39,700 = $32,300.
- Profit for the year = 32,300 + 500 − 3,000 − 6,000 = $23,800; closing finished goods $7,500 are a current asset.
Answer Cost of sales $39,700; gross profit $32,300; other income $500; expenses $9,000; profit for the year $23,800; closing finished-goods inventory $7,500 current asset.
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 manufacturing account reports cost of production $58,000. Opening finished goods are $8,000 and closing finished goods are $6,500. Sales are $93,000. Calculate cost of sales and gross profit.
Give me a hint
Add opening finished goods, subtract closing finished goods and compare with sales.
Compare my reasoning
- Cost of sales = 8,000 + 58,000 − 6,500 = $59,500.
- Gross profit = 93,000 − 59,500 = $33,500.
- The closing finished-goods balance remains a current asset.
Cost of sales $59,500; gross profit $33,500; closing finished goods $6,500 asset.
Look for these in your work
- Cost of sales correct
- Gross profit correct
- Inventory treatment correct
A manufacturer has factory rent $3,600, administration rent $1,500 and delivery costs $2,000. Explain which costs enter factory cost and where the others appear.
Give me a hint
Classify each cost by the activity it supports.
Compare my reasoning
- Factory rent supports production, so it is a factory overhead.
- Administration rent is an administrative expense; delivery costs are distribution expenses.
- Deduct administrative and distribution expenses after gross profit, not in the manufacturing account.
Factory rent $3,600 is a factory overhead. Administration rent $1,500 and delivery $2,000 are period expenses deducted after gross profit.
Look for these in your work
- Factory cost correct
- Administration classified
- Distribution classified
A business completes goods costing $18,000 but sells only 75% of them. Assuming no other inventory or production costs, calculate the cost of sales and closing finished goods.
Give me a hint
Allocate cost between sold output and unsold output.
Compare my reasoning
- Cost of sales = 75% × 18,000 = $13,500.
- Unsold proportion = 25%; closing finished goods = 25% × 18,000 = $4,500.
- Together the $13,500 expense and $4,500 asset equal the $18,000 production cost.
Cost of sales $13,500; closing finished-goods inventory $4,500. The amounts reconcile to the production cost of $18,000.
Look for these in your work
- Sold share correct
- Unsold share correct
- Total reconciled
Common mistakes
- Charging all production cost as an expense when some output remains unsold
- Adding closing finished goods to cost of sales
- Putting selling commission into factory overheads
- Reporting cost of production as profit
What can you explain now?
Where does cost of production go before gross profit is calculated?
Compare with the explanation
It enters the cost of goods available for sale
Opening and closing finished goods then determine cost of sales.
After trying it yourself, choose your next review. This is your self-assessment.
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Make it stick
How does unsold finished production affect cost of sales and the statement of financial position?
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.