Theory question 108
Manufacturing Accounts8. The following information relates to Soya-Ogi Manufacturing Company Limited for the six month ended 30th June, 2002:
Purchases – raw materials N120,000
Direct wages N100,000
Rent and rates N40,000
Carriage inwards N1,440
Opening stock: 1st January, 2002: Raw materials N20,000; Finished goods N16,000
Closing stock: 30th June 2002: Raw materials N22,240; Finished goods N32,000
Work in progress: Opening 1st January 2002 N4,800; Closing 30th June 2002 N16,000
Cost of factory supervision N8,000
Sale of finished goods N300,000
Distribution expenses N15,000
You are required to prepare: (a) Manufacturing Account; (b) Trading and Profit and Loss Account for the six month's ended 30th June, 2002.
Show the model answer
(a) Manufacturing account: raw materials 20,000 + purchases 120,000 + carriage inwards 1,440 − closing 22,240 = 119,200; direct wages 100,000; prime cost 219,200; factory supervision 8,000 = 227,200; add opening WIP 4,800, less closing WIP 16,000; cost of production 216,000.
(b) Trading: sales 300,000; opening finished goods 16,000 + 216,000 − 32,000 = cost of sales 200,000; gross profit 100,000.
Profit and loss: rent and rates 40,000; distribution 15,000; net profit 45,000.
Rent and rates are not said to be factory costs, so they are charged in profit and loss (if treated as factory overheads, cost of production becomes 256,000 and net profit is still 45,000).