Objectives of Manufacturing Account

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Various types of goods are available in the market which mainly include raw materials, semi-finished goods, and finished goods. Finished goods are prepared by the manufacturer with the help of raw materials and semi-finished goods. When a manufacturer produces goods, he has to bear various types of expenses like labour, land, electricity, machinery, carriage, etc. It is important to systematically manage all the expenses incurred in the manufacturing process because, without expense management, related accounting reports cannot be prepared.

Manufacturing Account is prepared to systematically manage all the economic transactions taking place in the manufacturing process and to know the outcome of the manufacturing process. It is prepared by the same business that manufactures the goods. There are many reasons for preparing it like finding out the cost of the item, helping in determining the price of the item, preparing data for decision making, etc. To prepare it or not depends on the business and to prepare it or not has its own advantages and disadvantages.

Objectives of Manufacturing Account

Following are the objectives of manufacturing account:

1. Cost Calculation:

The first objective of preparing manufacturing account is to calculate the cost of manufacturing the goods because further activity can be carried out only after the cost of manufacturing is known. Any work done without knowing the manufacturing cost can impact the business. To calculate the cost of the goods, all the transactions occurring in the manufacturing process are recorded in the Manufacturing Account, then whatever balance is left on the credit side is called the cost of the goods.

2. Price Determination:

Another objective of preparing manufacturing account is to help in determining the appropriate price of goods as it is not possible to determine the appropriate price of goods without knowing the cost of goods. The wrong pricing of goods directly affects the business. Whether a business makes profit or loss can also depend on appropriate pricing.

3. Monitoring of Manufacturing Activities:

By preparing manufacturing account, all the manufacturing activities can be seen at one place with the help of which it becomes easy to monitor them, hence this is also one of the objectives of preparing manufacturing account. It is a nominal account, due to which all the expenses are recorded on the debit side and all the income is recorded on the credit side. If there is opening stock, then it is recorded on the debit side and if there is closing stock, then it is recorded on the credit side.

4. Help in Planning:

Another objective of preparing manufacturing accounts is to help the management in planning because management can make proper planning only when it has proper data available. Preparation of manufacturing account provides proper data to the management with the help of which the management can prepare proper plan for the concerned activity. Preparing a proper plan also depends on the efficiency of the management.

5. Manage Expenses:

Another objective of preparing manufacturing account is to help the management in managing the expenses incurred during the manufacturing process as these expenses directly affect the production cost or manufacturing cost. If the production cost is affected then the price of the product is also affected. By preparing manufacturing account all the expenses can be seen at one place with the help of which expenses can be analyzed and expenses can be managed properly.

Read Also:

• What is a Manufacturing Account? Meaning, Features, and More.
• Format of Manufacturing Account
• Contents of Manufacturing Account

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