Guys please clear my conception in Manufacturing Account!!!

[Sijan92]

What is factory profit? and why is it added with the cost of production in the manufacturing account? How does profit increase cost of production its supposed to actually decrease it!!! and why is factory profit again added with the net profit in trading in the profit and loss account?? i mean its added with the cost and then again with the profit so whats the point ? cuz profit is decresed and then again decreased so its not supposed to have any effect!!!! anyone plz explain!!!

 

[Sijan92]

Re: Guys please clear my conception in Manufacturing Account

decreased and then again increased **

 

[iahmed]

Re: Guys please clear my conception in Manufacturing Account

It must be remembered that manufacturing firms not only produce goods but also buy them at times if they think that's more profitable. When a firm is able to produce goods in such a way that it is cheaper than buying them, they often think of it as making a profit (on manufacturing). They add a certain percentage of mark-up on the cost of production at the end (based on the profit they think they've earned) and then transfer it to the trading account.

 

[iahmed]

Re: Guys please clear my conception in Manufacturing Account

**h.randall has a pretty decent explanation regarding m.profit.

 

[Sijan92]

Re: Guys please clear my conception in Manufacturing Account

okay i understand what the profit means. but can i get a more comprehensive explanation why it is added to the cost of production?

 

[Sijan92]

Re: Guys please clear my conception in Manufacturing Account

cuz adding the profit to the cost of production will actually increase the cost of production which will eventually decrease the net proft!