Answer To Accounting Test Question No.Mfg 1 On Manufacturing Account

October 11th, 2008 /

Approach this question by :

(a) understanding the normal format of a manufacturing and trading account.

(b) do the expense adjustments by taking into consideration accruals and prepayments and allocating expenses solely due to manufacturing operations and then insert the final figures into (a)

Answer to Accounting Test Question No.Mfg.1

Jim Brothers

Manufacturing Account For The Year Ended 30 September Year 7

	$	$	$
Raw materials
Opening stock-raw materials		7,450
Purchases of raw materials	128,740
Add: Carriage inwards	1,055
Less: Purchases returns	310	129,485
Raw materials available for production		136,935
Less: Closing stock		6,325	130,610
Add: Direct wages (W1)			188460
Add: Direct expenses			3,280
PRIME COST			322,350
Add: Production overhead
Rates(W2)		3,840
Light, heat and power(W3)		2,610
Indirect wages		14,320
Telephone(W4)		640
Factory repairs		2,215
Insurance(W5)		900
Salaries		38,000
Depreciation of plant & machinery (W6)		32,000
Depreciation of furniture & equipment(W7)		4,200	98,725
Production cost			421,075
Add: Opening Work-In-Progress			5,330
			426,405
Less: Closing Work-In-Progress			6,105
Production cost of finished goods			420,300
Add: Manufacturing profit(15%) (W8)			63,045
Production cost transferred to Trading Account			483,345

Jim Brothers

Trading Account For The Year Ended 30 September Year 7

	$	$
Sales	721,560
Less: Returns inwards	1,215	720,345
Less: Cost of sales
Opening stock-Finished goods	12,110
Add: Production cost	483,345
	495,455
Less: Closing stock-Finished goods	15,255	480,230
Gross profit		240,115
Add: Manufacturing profit		63,045
		303,160

Workings:

[ adjust the expenses like accruals and prepayment and to compute the expenses that relates only to manufacturing ]

W1	Direct Wages A/c	=$187,240+$1,220(accrued)= $188,460
W2	Rates A/c	=($5,250-$450) x $3,840
W3	Light, Heat & Power A/c	=$3,480 x 3/4 =$2,610
W4	Telephone A/c	=$960 x 2/3 =$640
W5	Insurance A/c	=($1,420-$220) x 3/4 =$900
W6	Depreciation of Plant & Machinery A/c	=$160,000 x 20% =$32,000
W7	Depreciation of Furniture & Equipment A/c	=$42,000 x 10% =$4,200
W8	Manufacturing profit	=$420,300 x 15% =$63,045