Manufacturing

Manufacturing: production cost statement

A factory's cost of production adds direct materials, direct labour and factory overheads, then adjusts for work-in-progress that is not yet finished.

CAPS

Grade 12 · Accounting · Manufacturing

Accounting is a system: document, journal, ledger, then the statement.

  • The papers

    Grade 12 Paper 1 is company financial statements, cash flow, and analysis with audit and ethics. Paper 2 is reconciliations, VAT, inventory and manufacturing or fixed assets as the paper sets them.

  • The logic

    Assets equal owner’s equity plus liabilities. Every entry needs a source. VAT on sales is output VAT. VAT on qualifying purchases is input VAT. Profit is not the same as cash.

  • The relation

    Cost of production = direct materials + direct labour + factory overheads + opening WIP − closing WIP. Prime cost = direct material cost + direct labour cost

  • How a marker reads it

    Do not add closing work-in-progress; it is subtracted because those goods are not finished yet.

Each paper is 150 marks. A foreign total that does not balance is wrong even if the individual entries look neat. Show the note or the calculation the face of the statement came from.

DrCrassetequity

Worked example

Raw materials: opening R22000, purchases R96000, carriage on purchases R4000, closing R22000. Direct labour R64000. Factory overheads R43000. Work-in-progress: opening R12000, closing R15000. 2000 desks were completed. Calculate the cost of production of finished goods and the unit cost.

Simplified approach

A factory's cost of production adds direct materials, direct labour and factory overheads, then adjusts for work-in-progress that is not yet finished.

Culture note

A furniture factory in Pinetown that turns timber into school desks.

Formulas

Cost of production=direct materials+direct labour+factory overheads+opening WIP−closing WIP

Prime cost = direct material cost + direct labour cost

Step 1 / 7

Direct material cost

22000+96000+4000−22000=R100000.

Why this step: We only do one job per line so a marker can follow the marks — and so you can find a slip without starting over.

4. Step-by-step working

  1. 01

    Direct material cost

    22000+96000+4000−22000=R100000.

  2. 02

    Prime cost

    Add direct labour: 100000 + 64000 = R164000.

  3. 03

    Add overheads and WIP

    164000+43000+12000−15000=R204000.

  4. 04

    Unit cost

    R2040002000=R102.00 per desk.

More worked examples

Board walkthroughs on this topic. Open one, copy the working, then try the next.

Example 1 / 20

Raw materials: opening R18 000, purchases R96 000, carriage R4 000, closing R22 000. Calculate direct material cost.

How we got there

Read this like a teacher at the board. We go slowly, name every number, and say why we take each step.

Explain in another language · 11

1. What is the question asking?

Read the question twice. Circle the unknown. Underline every number and unit. The paper is asking: Raw materials: opening R18 000, purchases R96 000, carriage R4 000, closing R22 000. Calculate direct material cost.

Before any working — hunt first

Given

Numbers and units already in the sentence: R18 · 000 · R96 · 000 · R4 · 000 · R22 · 000. Copy each one into a column. A name without a number is not given.

Missing

After you copy the given, the letter that still has no number is missing. The paper is pointing at: direct material cost. Circle that word — that is the missing variable.

Find

We are required to find: direct material cost. Write that as a symbol on the left, with a question mark, before you touch a formula.

Calculate

What we need to calculate: Opening + purchases + carriage − closing. Then substitute the given, one line at a time, to get direct material cost.

In other words — as if you have never seen this before

If you have never seen this before: Opening + purchases + carriage − closing. We will name a method in words, write the formula with no numbers, then substitute one line at a time.

2. What do we already know?

Opening, purchases, carriage, closing.

3. Which method — and why this one?

Opening + purchases + carriage − closing.

4. Step-by-step working

  1. 01 / 08

    Step A — Read the question twice

    Slow down. Circle the word that names the unknown. Underline every number and its unit. Do not grab a formula yet — first decide what the paper is actually asking.

    Why this step: If you can say the method in a sentence, you will pick the right formula. First-timers skip this and grab the first equation they remember.

  2. 02 / 08

    Step A2 — Hunt: Given, Missing, Find, Calculate

    Given: Numbers and units already in the sentence: R18 · 000 · R96 · 000 · R4 · 000 · R22 · 000. Copy each one into a column. A name without a number is not given. Missing: After you copy the given, the letter that still has no number is missing. The paper is pointing at: direct material cost. Circle that word — that is the missing variable. Find: We are required to find: direct material cost. Write that as a symbol on the left, with a question mark, before you touch a formula. Calculate: What we need to calculate: Opening + purchases + carriage − closing. Then substitute the given, one line at a time, to get direct material cost.

    Why this step: Do not name the letters yet. First hunt: what already has a number (Given), what has no number (Missing), the word the paper wants (Find), and which formula still contains the missing letter (Calculate).

  3. 03 / 08

    Step B — Write the given in a column

    Opening, purchases, carriage, closing.

    Why this step: A column with units stops you mixing cm with m, or minutes with seconds. Markers can also see you started correctly.

  4. 04 / 08

    Step C — Name the method in words

    Opening + purchases + carriage − closing.

    Why this step: If you can say the method in a sentence, you will pick the right formula. First-timers skip this and grab the first equation they remember.

  5. 05 / 08

    Calculate

    18 000+96 000+4 000−22 000=R96 000.

    Why this step: We only do one job per line so a marker can follow the marks — and so you can find a slip without starting over.

  6. 06 / 08

    Step G — Sense-check the size

    Ask: is this the kind of number a Grade 10–12 paper would want? A speed of 3 000 ms for a learner walking, or a probability bigger than 1, means a unit or algebra slip. Estimate first: round the numbers and do the sum in your head.

    Why this step: Markers write ‘unrealistic’ in the margin when the method is right but the size is wild. A 10-second head check often finds a missing 10² or a unit that never changed.

  7. 07 / 08

    Step F — Box the answer with its unit

    R96 000.

    Why this step: A number without a unit is half a mark on a Physics paper, and a marker can miss a Maths answer that is buried in working.

  8. 08 / 08

    Step H — What the marker is looking for

    On an NSC memo you usually earn: (1) a method mark for naming the right formula or idea in words, (2) an accuracy mark for substituting the given numbers with units, (3) an accuracy mark for the boxed answer with its unit. Write those three lines even if you are unsure of the arithmetic — blank pages score zero.

    Why this step: First-timers chase the final number and leave the method blank. The memo still pays out for the idea and the substitution even when the last line is wrong.

5. The answer

R96 000.

Copy onto your answer sheet — in this order

Answer: R96 000.

6. Check it like a marker

Carriage on raw materials is part of direct material cost.

7. A trap first-timers fall into

First-timers often grab the first formula they remember, mix units (cm with m, minutes with seconds), or drop a minus sign. Write the formula in words first: “this equals that, because…”

Ntsako · fx-991ZA PLUS. Tap to calculate.