manufacturing exercise | Expense | Cost Of Goods Sold

S5 Manufacturing Account/LWL

Manufacturing Accounts ( A.

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Function of a Manufacturing Acccount For those businesses which deal with manufacturing products. It is common in today’s business to act both as manufacturer ( ) and retailer ( ). e.g Crocodile, Bossini, G2000, U2. What is the advantage as being a manufacturer as well as a retailer? Division of Costs The purpose of a Manufacturing Account is to ascertain Cost of Production ( ).

B.

Cost of Production = Prime Cost + Factory Overheads + Opening Work in Progress – Closing Work in Progress C. Prime Cost ( ) Prime cost is the DIRECT expenses which can be traced back to each unit of production. It consists of: (1) Direct Materials ( ) (2) Direct Wages ( ) (3) Direct Expenses e.g. Royalty ( ) Factory Overheads ( ) Indirect expenses in the factory which helps production of goods. e.g. Indirect wages, rent and rates of the factory, depreciation of plant and machinery, factory fuel and power, etc. ) Work in Progress ( Where goods have not been completed, they cannot be sold in the year. For ease of accounts recording, the ‘whole’ of the Work-in-Progress is calculated. The treatment is the same as in Opening Stock and Closing Stock, i.e. + Opening WIP – Closing WIP

D.

E.

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12. Trading and Profit and Loss Account for the year ended 31 December 200X _________________________________________________________________ $ $ $ Raw Materials: Opening Stock Purchases (Raw Materials) Add : Carriage Inwards xxx xxxx xx _____ xxxx (xx) _____ xxxx ______ xxxx (xx) ____ xxxx xxx xxx ______ XXXX xxx xxx xx xxx xxx _____ XXXX ________ XXXX WORK-IN-PROGRESS Opening Work-in-Progress (1.S5 Manufacturing Account/LWL F. Format Company Name Manufacturing.1.200y) xxxx (xxx) _____ PRODUCTION COST OF GOODS COMPLETED c/d 2 Less: Return Outwards Less: Closing Stock (Raw materials) Cost of Raw Materials Consumed Direct Materials Direct Expenses (Royalty) PRIME COST FACTORY OVERHEADS: Factory rent and rates Fuel and power Indirect wages Lubricants ( ) Depreciation of plant and machinery XXX _______ XXXX .200x ) Less: Closing Work-in-Progress (31.

S5 Manufacturing Account/LWL ===== (Trading Account) Finished Goods Sales Less: Cost of Goods Sold Opening Stock Add: Production Cost of Goods Completed b/d xxxx xxx xxxx _____ xxxx (xxx) _____ Less: Closing Stock (xxx) _____ XXX GROSS PROFIT Less : Expenses Administrative Expenses (Office expenses) e. Office rent and rates Administrative salaries General adminstration expenses Depreciation of office furniture.g. office equipment Selling and Distribution Expenses e.g. Discounts allowed Bad Debts Provisions for Bad Debts (xxx) _____ NET PROFIT FOR THE YEAR XXX ==== 3 .g. Advertising expenses Sales Commissions Carriage Outwards Financial Expenses e.

S5 Manufacturing Account/LWL Balance Sheet as at 31 December 200X FIXED ASSETS Cost Net Book Value xxxxx xxx xxxx xxxx xxx xxxx _______________________________ xxxxx xxx xxxx =============== xxx xx xxx xxx (xxx) _____ Accumulated Depreciation Machinery Office Equipment CURRENT ASSETS Stock : Raw Materials Work in Progress Finished Goods Debtors Less: Provisions for Bad Debts Prepaid Expenses Bank Cash xxx xx xxx xxx _____ xxxx Less: CURRENT LIABILITIES Creditors Accrued expenses xxx xx ___ (xxx) _____ xxx _____ xxxx ==== xxxx xxx ______ xxxx (xxx) _____ xxxx ==== 4 Working Capital FINANCED BY: Capital on 1.1.200x Add: Net Profit for the year Less: Drawings .

000 195. $ Notes: 1.000 Cr.000 36.000 420.000 2.000 payable to th factory manager as a bonus. Salaries of administrative staff included an amount of $80. $ Opening Stock: Loose Tools Purchases of loose tools Carriage inwards Wages and salaries: administrative staff 12. Answer: Manufacturing Account for the year ended 31 December 2002 _________________________________________________________________ 5 . Closing Stock: Loose Tools $8. Difficult Entries: Example: Trial Balance for the year ended 31 December 2002 Dr.S5 Manufacturing Account/LWL G.

900 Returns inwards: Shoes manufactured 13. The following accounts for the year ended 31 December 1990: 6 . (iv) The expenses on electricity.300 Carriage outwards 6.400 Office salaries 146.000 Manufacturing wages 137.700 (ii) From 1 January 1990 onwards.300. the company issued for cash $300.300 Shoes imported 538.000 Opening stocks: Finished goods at cost 52. It had also decided to import genuine leather shoes to meet the needs of the local consumers.600 Factory expenses 44.200 and the prepaid insurance premium was $2.500 Electricity 5.300 Work in progress at cost 23. (vi) On 31 December 1990. and rates and insurance are chargeable three-fifths to the factory and the balance to the office. Manufactured and sold sports shoes.500 Office expenses 19.200 Additional information: (i) Closing stocks valued at cost: $ Shoes manufactured Shoes imported 55.300 Raw materials consumed 354.S5 Manufacturing Account/LWL Exercises Question 1 Tictac Ltd. REQUIRED: Prepare for Tictac Ltd. The following balances were extracted from the books on 31 December 1990: $ Carriage inwards: shoes imported 62. accrued office salaries amounted to $13.600 Selling expenses 36.800 Plant and machinery at cost 308.000 10% debentures repayable at the end of June 1995.000 Purchases: shoes imported 352.800 Sales: Shoes manufactured 925. the manufactured goods are transferred to the trading account at factory cost plus 25% profit loading.400 Work in progress 36. (iii) Depreciation is to be provided at 10% on cost for office furniture and fixtures and plant and machinery.700 Office furniture and fixtures at cost 121. (v) On 1 July 1990.000 Rates and insurance 8.

the company manufactures several types of kettles.000 170.000 430.200. Most goods it trades are purchased from various suppliers in a finished form. In addition.000 160.000 120.000 10.000 2.000 20.accumulated depreciation as at 1 May 1995 Motor vehicles – at cost Stocks at 1 May 1995 Raw materials Manufactured goods Other goods Debtors Creditors Bank Sales Purchases – Raw materials .000 1.S5 Manufacturing Account/LWL A manufacturing account showing the prime cost and the total cost of manufactured shoes transferred to the trading account.150.000 10. The bookkeeper drew up the following trial balance at 30 April 1996: $ Ordinary share capital of $1 each General reserve Retained profits 15% long-term loan Machinery – at cost .000 7.000 23. (91Q. (b) A trading and profit and loss account showing separately the gross profit on sales of manufactured shoes and imported shoes.000 22.000 164.600 2.000 257.100 ____________ 2.000 7 .855.000 50.9) Question 2 Success Limited is a retailer of kitchenware.000 160.Other goods Salaries Rent and rates Electricity Interest on loan Sundry expenses $ 200.500 9.855.000 48.600 ======== ======== (a) 400.000 100.

423 Machinery – at cost 873. (ii) Salaries include wages of $54.000.000 Manufactured goods 12.accumulated depreciation as at 1 167.500 (v) The apportionment of rent and rates and electricity to the kettle-making department is 25%.180 May 1998 Motor vehicles – at cost 134.5% per annum Machinery – 10% per annum The motor vehicle was purchased in 1996. trading and profit and loss account (with the section on appropriations) for the year ended 30 April 1996: and (13 marks) (b) a balance sheet (7 marks) (97 Q. (iii) Rates prepaid at 30 April 1996 amounted to $2.7) Question 3 The following trial balance was extracted from the books of Rock Limited.280 May 1998 8 .000 Retained profits 48.000 paid to the kettle-making employees.240 .S5 Manufacturing Account/LWL Additional information: (i) Depreciation is to be provided using the reducing balance method at the following rates: Motor vehicles – 12. (iv) Accruals at 30 April 1996 were: Electricity $1.500 Other goods 215.000 of the profits to genral reserve and to declare a final dividend of $0. REQUIRED: (a) a manufacturing.000 (vii) The directors proposed to transfer 440.000 General reserve 50.50 per share. It is the company’s policy to charge a full year’s depreciation in the year of acquisition.accumulated depreciation as at 1 74. a candy manufacturer. (vi) Stocks at 30 April 1996 were: $ Raw materials 40.800 . on 30 April 1999: $ $ Ordinary share capital of $1 each 240.

500 936. 2/5 factory) Selling expenses 165. The unsold consignment goods were included in the closing stock of finished goods at $25.440 83. No information about the sales has been given to the consignor and no settlement has yet been made.000 of the profits to general reserve and declare a final dividend of 30%.620 97.200 Finished goods 88.163 ________ 3.500 were included in selling expenses.632 Factory maintenance 12.000 were credited to the sales account and consignment expenses of $26.790 240.200 Work in progress 30. (vi) The directors proposed to transfer $20.300 27.380 (v) Rock Limited recently agreed to act as the consignee for Mountain Sweet Limited at a commission of 10% on sales.200 72.000. 9 .000 70.050.186.400 200.680 243.203 ======== _________ 3.158 (iv) Accruals at 30 April 1999 were: $ Debenture interest ? Rent 4.050.203 ======= Additional information: (i) Stock as at 30 April 1999: $ Raw materials 97.560 60.920 2. Consignment sales of $115.910 127.400 (ii) Depreciation was to be provided for: Machinery – 20% on cost Motor vehicles – 25% on net book value (iii) Analysis of the wages figure revealed: $ Direct manufacturing 48.S5 Manufacturing Account/LWL Stock as at 1 May 1998 Raw materials Work in progress Finished goods Debtors and creditors Sales Purchases of raw materials 8% debentures (issued in 1990) Bank Wages Salaries Rent and rates (3/5 office.

565.9) Question 4 The following information is supplied by the bookkeeper of the Overseas Manufacturing Company for the year ended 31 March 2001: $ Stocks.000 1.000 2.625.470.745.000 195.000 Additional information: (i) Depreciation was to be provided for: Plant and machinery 20% on cost Office equipment 25% on cost 10 .000 896.000 24.000 4.980.000 1.000 4.000 2.280.000 2.150.512. 1 April 2000 Raw materials Finished goods Work in progress Sales Sales commission Wages and salaries Direct labour Indirect labour Administrative staff Purchases of raw materials Carriage inwards Carriage outwards Electricity and water Other production expenses Other administration expenses Plant and machinery.370. and (11 marks) (b) a balance sheet as at the same date.035. (9 marks) (99 Q.000 16. trading and profit and loss account (with the section on appropriations) for the year ended 30 April 1999.000 77.000 2. at cost Office equipment.000 2.000.000 4.203.890.800.000 6.930. at cost Stocks.820.936. 31 March 2001 Raw materials Finished goods Work in progress 3.000 3.000 4.S5 Manufacturing Account/LWL REQUIRED TO PREPARE: (a) a manufacturing.

the production cost of finished goods and gross profit.400 4. REQUIRED: Prepare the manufacturing and trading accounts of Overseas Manufacturing Company for the year ended 31 March 2001.150 18.685 11 . showing clearly the cost of raw materials consumed. at cost Office equipment. the prime cost.000 395. Electricity and water was to be apportioned as follows: Factory 80% Administration 20% Salaries of administrative staff included an amount of $80. the following balances were extracted from the books of Wilson Manufacturing Company: Sales Purchases of raw materials Carriage inwards Carriage outwards Stocks.5) Question 6 On 30 April 2002.100 240.372.000 58.000 83.000 385.890.522 30.400 198.840 225. at cost Rent and rates Electricity and water Wages and salaries Direct labour Indirect labour Administrative staff Repairs to machinery Other production expenses Other administrative expenses $ 9.180 194.000 910. 1 May 2001 Raw materials Work in progress Finished goods Plant and machinery.000 were in arrears at 31 March 2001.400 491.S5 Manufacturing Account/LWL (ii) (iii) (iv) Electricity charges of $165.250 134. (10 marks) (2001 Q.500 980.928 326.000 payable to the factory manager as a bonus.

900 Depreciation was to be provided for: Plant and machinery 15% on cost Office equipment 20% on cost Salaries of administrative staff included an amount of $100. Electricity and water was to be apportioned as follows: Factory 75% Administration 25% Rent and rates was to be apportioned as follows: Factory 80% Administration 20% (ii) (iii) (iv) (v) REQUIRED: (a) Briefly explain the difference between direct costs and indirect costs. (2 marks) (b) Calculate the following for Wilson Manufacturing Company for the year ended 30 April 2002: (i) prime cost. (3 marks) (c) Prepare the trading account of Wilson Manufacturing Company for the year ended 30 April 2002. assuming that Wilson Manufacturing Company had produced 400.2) 12 .840 Finished goods 181.S5 Manufacturing Account/LWL Additional information: (i) Stocks as at 30 April 2002: $ Raw materials 115. and (3 marks) (iii) production cost of each unit of finished goods. (3 marks) (ii) total factory overheads. (3 marks) (2002 Q.290 Work in progress 94.000 units of finished goods during the year.000 paid to the factory manager.

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