Theory question 106
Manufacturing Accounts6. The following balances were extracted from the accounts of Backyard Candle Industry for the year ended 31st December, 1995.
Raw materials purchased: N100,000
Direct wages: N40,000
Salaries: N10,000
Carriage on raw materials: N2,600
Carriage on finished goods: N3,400
Sales: N250,000
Factory expenses: N12,000
Insurance: N8,000
Rent: N20,000
Printing and stationery: N900
Discount allowed: N2,160
Returns outwards (Raw material): N3,920
Returns inwards: N2,760
Provision for bad debts: N760
Bad debt written off: N1,570
Additional information
(a) Stock (1/1/95; 31/12/95): Raw materials N12,000; N8,000. Work in progress N15,000; N6,000. Finished goods N6,000; N4,700.
(b) 75% of rent and insurance expenses are chargeable to Manufacturing Account.
(c) Plant and machinery were valued at N80,000 on 1/1/95. N5,000 is to be provided for depreciation for the year.
You are required to prepare: (i) Manufacturing Account, and (ii) Trading and Profit and Loss Accounts for the year ended 31st December, 1995
Show the model answer
(i) Manufacturing account: raw materials 12,000 + purchases 100,000 + carriage inwards 2,600 − returns outwards 3,920 − closing stock 8,000 = 102,680 used; direct wages 40,000; prime cost 142,680.
Factory overheads: factory expenses 12,000; rent 75% × 20,000 = 15,000; insurance 75% × 8,000 = 6,000; depreciation of plant 5,000; total 38,000. Add opening WIP 15,000, less closing WIP 6,000: cost of production 189,680.
(ii) Trading: sales 250,000 − returns inwards 2,760 = 247,240. Opening finished goods 6,000 + 189,680 − 4,700 = cost of sales 190,980. Gross profit 56,260.
Profit and loss: salaries 10,000; carriage outwards 3,400; rent 5,000; insurance 2,000; printing 900; discount allowed 2,160; provision for bad debts 760; bad debts 1,570; total 25,790. Net profit 30,470.
Charge only the factory share (75%) of rent and insurance to manufacturing; the office share goes to profit and loss.