What is manufacturing account ? | How to know financial performance of the business?

     Manufacturing accounting is a specialized field within accounting that deals specifically with the financial aspects of manufacturing operations. This includes managing the costs associated with raw materials, labor, and overhead, as well as tracking the production process and inventory levels.

One key aspect of manufacturing accounting is cost accounting, which involves determining the cost of goods sold (COGS) for each product. This includes calculating the cost of raw materials, labor, and overhead that goes into producing each item. This information is then used to set prices for products, as well as to make decisions about production and inventory levels.

Another important aspect of manufacturing accounting is inventory management. This involves keeping track of raw materials, work-in-progress, and finished goods inventory levels. This information is used to make decisions about when to order more raw materials and when to begin production on new items.

Manufacturing accounting also includes tracking production progress and monitoring efficiency. This includes measuring the number of units produced per hour and identifying bottlenecks in the production process. This information can be used to make adjustments to the process in order to increase efficiency.

Finally, manufacturing accounting also includes budgeting and forecasting. This involves creating financial projections for future production and sales, as well as monitoring actual results against those projections. This information can be used to make adjustments to the budget and production plan as needed.

There are several records that should be maintained in order to prepare a manufacturing account. These include:

1.     Raw materials inventory: This record should track the cost of raw materials that are purchased and the quantity on hand.

2.     Work-in-progress inventory: This record should track the cost of materials and labor that have been put into the production process but have not yet been completed.

3.     Finished goods inventory: This record should track the cost of completed products that are ready to be sold.

4.     Direct labor: This record should track the cost of labor that is directly involved in the production process.

5.     Overhead: This record should track all indirect costs associated with the production process, such as rent, utilities, and equipment maintenance.

6.     Production process: This record should track the number of units produced, the production process, and the efficiency of the production process.

7.     Sales: This record should track the quantity and cost of products sold.

8.     Budget and forecasting: This record should track the financial projections for future production and sales, as well as actual results.

By maintaining these records, a manufacturing account can be prepared that shows the cost of goods sold, gross profit, and net profit for a given period. This information can be used to make informed decisions about pricing, production, and inventory levels, and to evaluate the financial performance of the business.

Overall, manufacturing accounting plays a critical role in the financial management of manufacturing operations. It helps managers make informed decisions about production, pricing, and inventory levels, and it provides a clear picture of the financial performance of the business.