Theory question 106
Manufacturing AccountsThe following information were extracted from the books of Momoh for the year ended 31st December, 2022.
Stock of raw materials 1/1/2022: $55,680
Stock of raw materials 31/12/2022: $46,420
Purchases of raw materials: $197,520
Sales: $494,000
Stock of finished goods 1/1/2022: $65,740
Stock of finished goods 31/12/2022: $58,900
Factory power (Direct): $2,120
Factory light (Indirect): $680
Factory wages (Direct): $157,000
Factory rent and rates (indirect): $16,800
Sales expenses: $37,500
Capital: $170,000
General expenses: $35,720
You are required to:
(a) Prepare Manufacturing, Trading, Profit and loss Account for the year ended 31st December, 2022:
(b) Calculate the: (i) Net Profit Margin; (ii) Stock Turnover Ratio.
Show the model answer
(a) Manufacturing Account ($): Opening raw materials 55,680 + purchases 197,520 = 253,200 − closing raw materials 46,420 = cost of raw materials consumed 206,780; factory wages (direct) 157,000; factory power (direct) 2,120; Prime cost 365,900. Factory overheads: light 680 + rent and rates 16,800 = 17,480. Cost of production 383,380.
Trading Account: Sales 494,000; opening finished goods 65,740 + cost of production 383,380 = 449,120 − closing finished goods 58,900 = cost of sales 390,220; Gross profit 103,780.
Profit and Loss Account: sales expenses 37,500 + general expenses 35,720 = 73,220; Net profit $30,560.
(b)(i) Net profit margin = 30,560 ÷ 494,000 × 100 = 6.19%.
(ii) Stock turnover = cost of sales ÷ average finished goods stock = 390,220 ÷ ((65,740 + 58,900) ÷ 2 = 62,320) = 6.26 times.
Direct costs make prime cost; indirect factory costs are overheads; capital is not an expense.