Manufacturing Features and Aims

Manufacturing Businesses: Key Features

Production Process: Manufacturing businesses are involved in the transformation of raw materials into finished goods. This might involve several stages, such as design, assembly, and quality control.
Inventory: Manufacturing firms tend to have significant amounts of inventory, including raw materials, work-in-progress, and finished goods.
Capital Intensive: Due to the nature of their activities, these businesses typically require large amounts of capital for machinery, equipment and premises.
Cost Structure: They have a blended cost structure, comprising direct costs (raw materials and direct labour) and indirect costs (overheads such as rent, utilities, and salaries for non-production staff).
Long-term Investments: Manufacturing companies usually have significant long-term investments in equipment and facilities.

Aims of Manufacturing Businesses

Efficient Production: One of the main aims of manufacturing firms is to increase efficiency in the production process, aiming to create quality goods promptly and at a lower cost.
Productivity Improvement: By using technology and organising efficient workflows, manufacturing businesses strive to maximise output with minimum input.
Inventory Management: They aim to manage their inventory effectively to minimise costs and avoid overstocking or stockouts.
Maintain Quality: Ensuring the quality of goods is essential in order to retain customers and to build a positive reputation in the marketplace.
Profitability and Growth: Manufacturing businesses aim at improving their profitability by increasing sales revenue, streamlining operations, and controlling costs. They also pursue growth to expand their market share.

Financial Statements of Manufacturing Businesses

The Income Statement: This document highlights sales revenue, cost of goods manufactured, and other expenses to calculate the net income. The cost of goods manufactured is calculated as the sum of direct material costs, direct labour costs, and manufacturing overhead.
The Balance Sheet: This statement lists the assets, liabilities, and equity of the manufacturing firm. One key feature is the breakdown of inventory into raw materials, work-in-progress, and finished goods.
Cash Flow Statement: The cash flow statement shows the cash inflow and outflow from operating, investing, and financing activities.
Manufacturing Statement: This additional statement breaks down the costs involved in the production process, including direct materials used, direct labour, and manufacturing overheads, to determine the cost of goods manufactured.