Manufacturing Businesses flashcards

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Prime Cost

The total of all direct costs of production, specifically direct materials, direct labour, and direct expenses.

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Factory Overheads

All indirect costs associated with the production process in the factory, such as factory rent, supervisors' salaries, and depreciation of machinery.

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Cost of Production

The total cost incurred to manufacture goods that are completed during a period. It is calculated as Prime Cost + Factory Overheads, adjusted for opening and closing Work in Progress.

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Transfer Price

The price at which goods are transferred from the manufacturing department to the sales department. It is calculated as the Cost of Production plus a Factory Profit.

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Unrealised Profit

The profit included in the value of closing inventory of finished goods which has not yet been earned through an external sale. It must be eliminated from the accounts via a provision.

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Work in Progress (WIP)

Goods that are partially completed at the end of an accounting period. Their value is carried forward to be completed in the next period.

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Factory Profit

The profit added to the production cost when goods are transferred to the sales department. It's calculated as a markup on cost or a margin on the transfer price.

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Provision for Unrealised Profit (PUP)

An accounting provision created to eliminate unrealised profit from the value of closing inventory. It is deducted from inventory in the SOFP and adjusted against profit in the SOPL.