Theory question 105
Manufacturing AccountsSection B – Financial Accounting Practice
5. Noshud Limited is a manufacturing company. The following information were made available concerning its operations (D):
Stocks as at 1st March, 2004: Raw materials 50,000; Work-in-progress 18,000; Finished goods 25,000
Purchase of raw materials 650,000
Carriage inwards 15,000
Returns outwards 30,000
Direct factory wages 160,000
Depreciation of plant 20,000
Repairs to factory 12,000
Other factory wages 200,000
Factory power 60,000
Administrative salary 120,000
Sales 1,500,000
Office expenses 36,000
Stocks at 28th Feb., 2005: Raw materials 70,000; Work-in-progress 20,000; Finished goods 27,000
Additional information: (a) Finished goods are transferred to the trading section at cost plus 10%. (b) A third of office expenses and administrative salary is charged against production.
You are required to prepare: (i) Manufacturing Account for the year ended 28th February, 2005; and (ii) Trading Account for the year ended 28th February, 2005.
Show the model answer
(i) Manufacturing account: raw materials 50,000 + purchases 650,000 + carriage inwards 15,000 − returns 30,000 − closing 70,000 = 615,000; direct wages 160,000; prime cost 775,000.
Overheads: depreciation 20,000; repairs 12,000; other factory wages 200,000; power 60,000; ⅓ office expenses 12,000; ⅓ administrative salary 40,000; total 344,000. Add opening WIP 18,000, less closing WIP 20,000: cost of production 1,117,000.
Manufacturing profit 10% = 111,700; transfer to trading 1,228,700.
(ii) Trading account: sales 1,500,000; opening finished goods 25,000 + 1,228,700 − closing 27,000 = cost of sales 1,226,700; gross profit 273,300.
Add the 10% factory profit to cost of production before transferring to trading.