CA Devesh Thakur
A Production Account is a statement prepared by manufacturing businesses to ascertain the Cost of Production of goods manufactured during a specific period. It records all expenses incurred in converting raw materials into finished goods and helps management determine manufacturing efficiency and production costs.
1. Output Costing
Method to determine the cost per unit of production.
Example: Total Cost ₹1,00,000 ÷ 10,000 Units = ₹10/unit
2. Cost Sheet
Statement showing total cost and cost per unit.
- Cost Control
- Price Fixation
- Profit Planning
- Decision Making
3. Prime Cost
All direct costs related to production.
Example: ₹50,000 + ₹20,000 + ₹10,000 = ₹80,000
4. Factory Cost (Works Cost)
Prime Cost plus indirect factory expenses.
- Factory Rent & Electricity
- Supervisor Salary
- Machine Repairs
5. Cost of Production
Total cost incurred till goods are manufactured.
6. Cost of Sales
Total cost incurred to sell goods including selling & distribution overheads.
- Advertisement
- Sales Commission
- Delivery / Freight
7. Work-in-Progress (WIP)
Partially completed goods not yet ready for sale.
Example: Car assembly started but incomplete.
8. Finished Goods
Fully completed products ready for sale.
- Ready furniture
- Ready garments
- Ready mobile phones
9. Scrap
Residual material left after the production process.
- Iron Pieces
- Wood Dust
- Plastic Waste
Prime Cost
| Particulars | Amount |
|---|---|
| Direct Material | xxx |
| Direct Labour | xxx |
| Direct Expenses | xxx |
| Prime Cost c/d | xxx |
Factory Cost (Works Cost)
| Particulars | Amount |
|---|---|
| Prime Cost b/d | xxx |
| Factory Overheads | xxx |
| Factory Cost c/d | xxx |
Cost of Production
| Particulars | Amount |
|---|---|
| Factory Cost b/d | xxx |
| Office & Admin Overheads | xxx |
| Cost of Production c/d | xxx |
Cost of Goods Sold (COGS)
| Particulars | Amount |
|---|---|
| Cost of Production b/d | xxx |
| + Opening Stock of Finished Goods | xxx |
| − Closing Stock of Finished Goods | (xxx) |
| Cost of Goods Sold c/d | xxx |
Cost of Sales & Profit
| Particulars | Amount |
|---|---|
| Cost of Goods Sold b/d | xxx |
| Selling & Distribution Overheads | xxx |
| Profit | xxx |
| Sales | xxx |
| Cost Stage | Formula |
|---|---|
| Prime Cost | Direct Material + Direct Labour + Direct Expenses |
| Factory Cost | Prime Cost + Factory Overheads |
| Cost of Production | Factory Cost + Office Overheads |
| Cost of Goods Sold | Cost of Production + Opening FG − Closing FG |
| Cost of Sales | Cost of Goods Sold + Selling & Distribution Overheads |
| Profit | Sales − Cost of Sales |
📦 Raw Material
Starting point of production
🟠 Prime Cost
DM + DL + DE
🔵 Factory Cost
Prime Cost + Factory OH
🟣 Cost of Production
Factory Cost + Office OH
🟡 Cost of Goods Sold
COP + Opening FG − Closing FG
🟢 Cost of Sales
COGS + Selling OH
💰 Profit / Loss
Final outcome
- Production Account helps manufacturing businesses find the total cost of production
- Prime Cost = Direct Material + Direct Labour + Direct Expenses — the foundation
- Factory Cost adds indirect factory expenses (rent, electricity, repairs) to Prime Cost
- Cost of Production further adds office & administrative overheads
- COGS adjusts for opening and closing finished goods stock
- Profit = Sales − Cost of Sales (after adding selling & distribution overheads)
- WIP = partially done goods; Finished Goods = ready for sale; Scrap = production waste
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