What is the difference between manufacturing company accounting and treading company accounting?

what is the difference between manufacturing company accounting and treading company accounting
tusher
Asked Sep 01, 2015
Hi, nothing accurate but I think that
A trading account is prepared to find out the results (profit or loss) of trading activities. Cost of goods Sold is deducted from the value of sales to find out the trading result, i.e. gross profit.
But,
A manufacturing account is prepared to find out cost of production. That is a manufacturing account is relevant when there is manufacturing activities.
I know a manufacturing company who manufacture the madical cables in china.
jawlong
Answered Oct 08, 2015
Generally agree with Jawlong, but for more info:
A trading company, or retailer/wholesaler, buys a completed product and re-sells it.
A manufacturing company buys raw materials and provides a finished or partially finished product to another manufacturing company or wholesaler.
The biggest difference is that a wholesaler/retailer has a good idea of the "cost" of the items they sell. If I buy a pair of shoes from the Chinese manufacturer for $2, my cost of goods sold when I sell them to an American company for $5 is that $2. A manufacturing company has to calculate the cost of the products they make in order to properly price them. It does no good to make a lot of sales if you lose money on every sale. This is why "Cost accounting," is such a big deal.
Basically, cost accounting is the process of figuring out how much of your major costs go into each product, then allocating minor costs to your products in such a way that you don't badly overstate or understate costs. If Jim only makes widgets, you can assign all his labor costs to widgets, but since Paul works on both widgets AND doodads, you need Paul to keep track of how many hours he spends on doodads, and how many on widgets, and then you divide the cost of his time appropriately. Meanwhile Janice in HR and Bill the receptionist don't directly work on either widgets OR doodads, so you might look at the "direct costs" of each (direct costs are the costs you can economically match to one production line) and assign your HR and reception costs proportionately. Also, you may use nails in both widgets and doodads, but if widgets sell for $50 each, and doodads for $75 each, and your cost of nails is $1 per 100 units, you probably don't want to spend the time and money to track how many nails you use on each, so that would also go in your "indirect costs" category (indirect costs are costs that cannot economically be matched to one production line, and so are assigned on an estimated or ad hoc basis).
computant75
Answered Nov 12, 2015

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