• 1.Calculate the cost of raw materials consumed. Write the correct heading against each line of your calculation.
• 2.Add the figures for direct wages and direct expenses, annotating accordingly.
• 3.Annotate the total ‘prime cost’.
• 4.In a subsidiary column, itemise the various overhead expenses. Note: it may be that only part (e.g. half) of a cost (e.g. rent) can be fairly attributed to the manufacturing process, the other part being more fairly attributed for example to sales. In such a case, only the first part should be itemised. Just mark it like this: ‘Rent (½)’
• 5.Total up this column. Place the total in the main cash column and total that column.
• 6.In the subsidiary column write your work in progress adjustment (see formula on page 91). Write the correct heading against each line of your calculation. Place the resultant figure in your main cash column and add or deduct it from your subtotal according to whether it is a positive or negative figure.
• 7.Write against the difference: ‘Cost of finished goods transferred to trading account’.

1. Suppose a lorry costing £100,000 had an estimated lifespan within the company of 5 years and an estimated residual value at the end of that period of £3,000.

Using the straight line method and a rate of 20% the effect would be as shown in Figure 71.