Theory question 102
Manufacturing AccountsSection B (Answer three questions only from this section)
E. Diali is a manufacturer of expanded materials. The following balances have been extracted from the books of the business for the year ended 31st December, 1991.
Capital Cr ₦18,400
Drawings Dr ₦720
Stock at January, 1991: Raw materials ₦8,000; Work-in-progress ₦3,250; Finished goods ₦6,000
Manufacturing wages – Direct ₦6,450; – Indirect ₦2,800
Miscellaneous expenses ₦260
Travelling expenses ₦2,400
Rent and Rates – factory ₦600
Freehold premises ₦10,000
Plant and Machinery – factory ₦16,000
Sales Cr ₦98,260
Debtors and Creditors Dr ₦4,050, Cr ₦3,190
Salaries and Wages ₦3,500
Bank ₦6,000
Cash ₦2,000
Selling and administration expenses ₦2,850
Discount Received Cr ₦150
Discount Allowed ₦120
Purchases of raw materials ₦45,000
Totals ₦120,000, ₦120,000
Additional Information: (i) Stock at 31st December, 1991: Raw Materials ₦9,500; Work-in-progress ₦3,750; Finished goods ₦5,840 (ii) Rates paid in advance ₦250 (iii) A provision for bad debts of ₦300 is to be made (iv) Depreciation provisions is to be provided on Plant and Machinery at 20%
You are required to prepare manufacturing, Trading and Profit and Loss Account for the year ended 31st December, 1991.
Show the model answer
Manufacturing Account: raw materials 8,000 + 45,000 − 9,500 = 43,500 consumed; direct wages 6,450; prime cost 49,950
Factory overheads: indirect wages 2,800; rent and rates (600 − 250) 350; depreciation of plant 20% × 16,000 = 3,200; total 6,350
Add opening WIP 3,250, less closing WIP 3,750; cost of production ₦55,800
Trading Account: sales 98,260; cost of sales 6,000 + 55,800 − 5,840 = 55,960; gross profit ₦42,300
Profit and Loss Account: add discount received 150 = 42,450; expenses: miscellaneous 260; travelling 2,400; salaries and wages 3,500; selling and administration 2,850; discount allowed 120; provision for bad debts 300; total 9,430
Net profit ₦33,020
Only factory costs go into the manufacturing account; selling and office costs go to profit and loss.