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JAMB Principles of Accounts 2007 Question 10

Question 10

Manufacturing Accounts

In the trading and profit and loss account of a manufacturing organization, purchases is

  1. A.always the same amount as the total factory overhead cost
  2. B.given separately
  3. C.equivalent to the total cost of goods manufactured
  4. D.always the same as the prime cost.
Show the answer and explanation

Answer: C (equivalent to the total cost of goods manufactured)

Explanation

A manufacturer makes its own goods instead of buying them, so in the trading account the cost of goods manufactured is used where a trader would show purchases.