WAEC Financial Accounting 2014 Theory question 105

Theory question 105

Manufacturing Accounts

Alex Co. Limited is a manufacturing company. The following balances were extracted from its books on 30th September, 2012:
Stock – 30/10/2011: Raw materials Le 9,600; Work-in-progress Le 13,000; Finished goods Le 11,200
Sales: Le 190,000
Carriage on raw materials: Le 490
General expenses: Le 8,400
Selling expenses: Le 17,280
Discounts allowed: Le 480
Discounts received: Le 640
Carriage outwards: Le 760
Production wages: Le 42,000
Office salaries: Le 1,620
Purchase of raw materials: Le 56,000
Returns inwards: Le 3,000
Factory rent: Le 13,600
Office insurance: Le 9,600
Depreciation of plant and machinery: Le 1,640
Stock – 30/09/2012: Raw materials Le 11,800; Work-in-progress Le 13,040; Finished goods Le 14,400
Additional information: Goods manufactured during the year are to be transferred to the Trading Account at Le 130,000.
You are required to prepare the necessary accounts to show the following: (a) Cost of raw materials used; (b) Prime cost; (c) Cost of production; (d) Gross manufacturing profit; (e) Gross profit on sales; (f) Net profit.

Show the model answer

Model answer

Manufacturing Account for the year ended 30/9/2012
(a) Raw materials used: 9,600 + 56,000 + 490 − 11,800 = Le 54,290
(b) Prime cost: 54,290 + production wages 42,000 = Le 96,290
Factory overheads: rent 13,600 + depreciation 1,640 = 15,240 → 111,530
Add opening WIP 13,000, less closing WIP 13,040
(c) Cost of production Le 111,490
(d) Manufacturing profit: transfer value 130,000 − 111,490 = Le 18,510
Trading Account
Sales 190,000 − returns inwards 3,000 = 187,000
Cost of sales: 11,200 + 130,000 − 14,400 = 126,800
(e) Gross profit on sales Le 60,200
Profit and Loss Account
Gross profit 60,200 + manufacturing profit 18,510 + discounts received 640 = 79,350
Less: general expenses 8,400; selling expenses 17,280; discounts allowed 480; carriage outwards 760; office salaries 1,620; office insurance 9,600 = 38,140
(f) Net profit Le 41,210

Explanation

Goods are transferred at Le 130,000, so the manufacturing account shows a profit as well as the trading account.