Theory question 105
Manufacturing AccountsGrape Enterprises makes fruit juice. The following information relates to the year ended 31st December, 2009:
Stock – 1st January, 2009: Raw materials ₦336,500; Work-in-progress ₦60,000; Finished goods ₦350,000
Purchases of raw materials: ₦950,000
Sales: ₦6,000,000
Office salaries: ₦315,000
Carriage inwards: ₦78,500
Royalties: ₦450,000
Direct factory wages: ₦925,000
Discounts allowed: ₦20,000
Indirect wages: ₦225,000
Insurance of factory: ₦250,000
General expenses: ₦300,000
Depreciation of plant: ₦310,000
Delivery van expenses: ₦62,000
Office expenses: ₦300,000
Advertisement: ₦65,000
Stock – 31st December, 2009: Raw materials ₦245,000; Work-in-progress ₦47,500; Finished goods ₦285,000
Additional information: (i) Half of general expenses relates to the factory; (ii) One third of the office expenses should be treated as factory cost.
You are required to prepare the Manufacturing, Trading and Profit and Loss Account for the year ended 31st December, 2009.
Show the model answer
Manufacturing Account
Raw materials: opening 336,500 + purchases 950,000 + carriage inwards 78,500 = 1,365,000 − closing 245,000 = 1,120,000 consumed
Direct factory wages 925,000; royalties 450,000
Prime cost ₦2,495,000
Factory overheads: indirect wages 225,000; insurance 250,000; general expenses (½) 150,000; depreciation of plant 310,000; office expenses (⅓) 100,000 = 1,035,000
3,530,000 + opening WIP 60,000 − closing WIP 47,500
Cost of production ₦3,542,500
Trading Account
Sales 6,000,000
Cost of sales: opening finished goods 350,000 + 3,542,500 − closing 285,000 = 3,607,500
Gross profit ₦2,392,500
Profit and Loss Account
Expenses: office salaries 315,000; general expenses (½) 150,000; office expenses (⅔) 200,000; discounts allowed 20,000; delivery van expenses 62,000; advertisement 65,000 = 812,000
Net profit ₦1,580,500
Split general and office expenses between factory and office before you start.