IGCSE Accounting: Manufacturing accounts (Cambridge 0452) – Revision Notes

Syllabus edition note. This resource follows the Cambridge IGCSE Accounting 0452 syllabus (and Cambridge O Level Accounting 7707, which has the same subject content for the same series) for exams in 2027, 2028 and 2029 (version 1), first examined in the March 2027 series in India and the June 2027 series elsewhere. If you sit 0452 in November 2026, you sit the 2026 syllabus (version 2), which differs: Paper 1 has 35 multiple-choice marks in 1 hour 15 minutes, not 40 marks in 1 hour 30 minutes; Topic 7 is “Accounting principles and policies”, without 7.2 Ethical considerations or 7.3 Technology and sustainability; 4.4 is “Irrecoverable debts and provision for doubtful debts”; income statements are named instead of statements of profit or loss; three-column running balance accounts are not required; Clubs and societies is 5.4 and Manufacturing accounts 5.5; and 6.3 is “Inter-firm comparison”. For this topic, the 2026 syllabus covers only trading and service businesses in 5.1 and limits drawings adjustments to goods taken by the owner for own use; for limited companies it excludes cumulative and non-cumulative preference shares, rights issues, share premium and capital redemption reserve but requires the difference between redeemable and non-redeemable preference shares (the 2027-2029 syllabus lists none of these); and for incomplete records it does not ask why businesses keep them or what their advantages are. If you sit in November 2026, work from the 2026 syllabus on the Cambridge International website.

These are condensed notes for section 5.4 Manufacturing accounts of the Cambridge IGCSE Accounting 0452 syllabus for exams in 2027, 2028 and 2029 (version 1). For full explanations and a complete set of statements, use the study guide. Then test yourself with the practice questions. Wider topic notes are in Preparation of financial statements revision notes. Find the course hub, the checklist and the free diagnostics.

Key terms

Term	Meaning
Direct cost	Traced to the goods made: direct material and direct labour
Indirect cost	Factory cost not traced to units; a factory overhead
Direct material	Cost of raw materials consumed
Direct labour	Wages of production workers
Prime cost	Direct material + direct labour
Factory overheads	Indirect wages, factory rent, power, insurance, depreciation of factory machinery
Work in progress (WIP)	Part-finished goods at the year end
Factory cost of production	Prime cost + factory overheads + opening WIP - closing WIP

Formulas

• Cost of raw materials consumed = opening raw materials + purchases + carriage inwards - returns outwards - closing raw materials
• Prime cost = cost of raw materials consumed + direct labour
• Factory cost of production = prime cost + factory overheads + opening WIP - closing WIP
• Cost of sales (manufacturer) = opening finished goods + factory cost of production - closing finished goods
• Gross profit = net revenue - cost of sales

Method in steps

1. Sort every cost into direct material, direct labour, factory overhead, or not a factory cost.
2. Adjust each factory expense for accruals, prepayments and depreciation before listing it.
3. Calculate raw materials consumed, then prime cost.
4. Add factory overheads. Add opening WIP, deduct closing WIP. This gives factory cost of production.
5. Carry that figure into cost of sales in the statement of profit or loss. Add office and selling expenses below gross profit.
6. In the statement of financial position, list raw materials, WIP and finished goods separately in current assets.

Statement layout to remember

Manufacturing account for the year ended ...
Opening raw materials + Purchases + Carriage inwards - Returns outwards
  - Closing raw materials = Cost of raw materials consumed
+ Direct labour                          = PRIME COST
+ Factory overheads (adjusted)
+ Opening WIP - Closing WIP              = FACTORY COST OF PRODUCTION

Statement of profit or loss
Net revenue
- (Opening finished goods + Factory cost of production - Closing finished goods)
= Gross profit
+ Other income (adjusted) - Office and selling expenses = Profit for the year

Small worked reminder

Oakhaven Preserves, a sole trader making jam, year ended 30 September 2028. Raw materials 5,400 opening and 6,100 closing; purchases 31,800; carriage inwards 600; direct wages 24,000; indirect wages 7,500; factory heating 2,600 paid and 300 owing; factory insurance 1,800 paid, 450 of it prepaid; factory equipment cost 40,000, depreciated 10% on cost; hand tools revalued from 1,500 to 1,300 after 400 of purchases; WIP 2,200 opening and 1,700 closing; finished goods 3,900 opening and 4,600 closing; revenue 96,000.

Step	Working	$
Raw materials consumed	5,400 + 31,800 + 600 - 6,100	31,700
Prime cost	31,700 + 24,000	55,700
Heating	2,600 + 300	2,900
Insurance	1,800 - 450	1,350
Equipment depreciation	10% x 40,000	4,000
Hand tools depreciation	1,500 + 400 - 1,300	600
Factory overheads	7,500 + 2,900 + 1,350 + 4,000 + 600	16,350
Factory cost of production	55,700 + 16,350 + 2,200 - 1,700	72,550
Cost of sales	3,900 + 72,550 - 4,600	71,850
Gross profit	96,000 - 71,850	24,150

Inventories in the statement of financial position: 6,100 + 1,700 + 4,600 = 12,400.

Adjustments from 5.1

Adjustment	Treatment
Straight line	(Cost - residual value) / useful life
Reducing balance	Fixed % of net book value each year
Revaluation	Opening value + additions - closing value
Factory expense accrued or prepaid	Adjust in the manufacturing account
Office expense accrued or prepaid	Adjust in the statement of profit or loss
Income accrued or in advance	Adjust other income; current asset or current liability
Irrecoverable debts; allowance	Statement of profit or loss; receivables net of allowance
Goods taken by owner	Reduce cost of sales; increase drawings
Private expense paid by business	Remove from expenses; increase drawings

Depreciation of factory machinery is a factory overhead. Depreciation of office equipment or vehicles used for delivery belongs in the statement of profit or loss.

Must-know distinctions

• Prime cost or factory cost of production? Prime cost stops before overheads and WIP. Factory cost of production includes both.
• Purchases or materials consumed? Prime cost uses materials consumed, after inventory adjustment.
• Opening or closing WIP? Opening is added, closing is deducted.
• Raw materials, WIP or finished goods? Each is a separate inventory. Raw materials and WIP are used in the manufacturing account; finished goods in cost of sales.
• Indirect labour or direct labour? Supervisors and cleaners are indirect.
• Factory or office? Only factory costs enter the manufacturing account.

Quick self-test

1. Classify as direct material, direct labour, factory overhead or not a factory cost: (a) leather for shoes; (b) wages of a storekeeper in the factory; (c) salary of an office clerk.
2. Opening raw materials 3,000, purchases 20,000, returns outwards 500, carriage inwards 400, closing raw materials 2,900. Find raw materials consumed.
3. Raw materials consumed are 20,000 and direct labour is 15,500. Find prime cost.
4. Prime cost 35,500, factory overheads 9,800, opening WIP 1,200, closing WIP 1,700. Find factory cost of production.
5. Closing WIP was understated by 800. State the effect on factory cost of production and gross profit.
6. Factory power paid is 6,400 and 700 is owing at the year end. State the charge for the year.
7. A machine has a net book value of 48,000 and is depreciated at 25% on reducing balance. Find the charge and the new net book value.
8. Factory tools were valued at 2,000, then 600 more were bought, and they are now valued at 1,700. Find the depreciation.
9. In which statement is depreciation of a delivery van charged?
10. Name the three inventories shown in the statement of financial position of a manufacturer.
11. Opening finished goods 8,200, factory cost of production 44,800, closing finished goods 9,000. Find cost of sales.
12. The owner takes finished goods costing 900 for home use. State the effect on gross profit and drawings.

Answers

1. (a) Direct material. (b) Factory overhead (indirect labour). (c) Not a factory cost.
2. 3,000 + 20,000 - 500 + 400 - 2,900 = 20,000.
3. 20,000 + 15,500 = 35,500.
4. 35,500 + 9,800 + 1,200 - 1,700 = 44,800.
5. Factory cost of production is overstated by 800, so cost of sales is too high and gross profit is understated by 800.
6. 6,400 + 700 = 7,100.
7. 25% x 48,000 = 12,000; new net book value 48,000 - 12,000 = 36,000.
8. 2,000 + 600 - 1,700 = 900.
9. The statement of profit or loss.
10. Raw materials, work in progress and finished goods.
11. 8,200 + 44,800 - 9,000 = 44,000.
12. Cost of sales falls by 900, so gross profit rises by 900; drawings rise by 900.

Where marks are usually lost

• Using purchases of raw materials in place of cost of raw materials consumed.
• Reversing the WIP adjustment.
• Treating all wages as direct labour.
• Charging factory machinery depreciation in the statement of profit or loss.
• Not adjusting the factory expense for the accrual or prepayment before totalling.
• Starting cost of sales with purchases when the business makes its goods.
• Giving one inventory figure in the statement of financial position.
• Writing a total with no label, so a marker cannot see which line it is.
• Omitting the $ sign or the year-end date from a heading.

Frequently asked questions

What is work in progress? Work in progress is part-finished goods still in the factory. Opening work in progress is added and closing work in progress is deducted when finding factory cost of production.

Are all factory wages direct labour? No. Direct labour is the wages of production workers. Wages of supervisors and other indirect factory staff are factory overheads.

How are a manufacturer’s inventories shown in the statement of financial position? Show three inventories under current assets: raw materials, work in progress and finished goods. Giving one inventory figure loses marks.

Does a manufacturer’s cost of sales start with purchases? No. A manufacturer’s cost of sales uses factory cost of production in place of purchases, adjusted for opening and closing finished goods inventory.

Official syllabus

Cambridge IGCSE Accounting 0452 syllabus for exams in 2027, 2028 and 2029 (version 1), Cambridge International, section 5.4 Manufacturing accounts.