Question

SECTION B (Financial Accounting Practice)
5. Alex Co. Limited is a manufacturing company. Balances extracted from its books on 30th September 2012 (raw materials, work-in-progress, finished goods stocks; sales; carriage on raw materials; general/selling expenses; discounts allowed/received; carriage outwards; production wages; office salaries; purchases; returns inwards; factory rent; office insurance; depreciation of plant and machinery). Goods manufactured during the year are transferred to the Trading Account at Le130,000.
Required: prepare accounts showing (a) Cost of raw materials used; (b) Prime cost; (c) Cost of production; (d) Gross manufacturing profit; (e) Gross profit on sale; (f) Net profit.

Accepted Answer

(a) Cost of raw materials used = Opening raw materials (9,600) + Purchases (56,000) + Carriage on raw materials (490) − Closing raw materials (11,800) = Le54,290.

(b) Prime cost = Cost of raw materials used (54,290) + Production wages (42,000) = Le96,290.

(c) Cost of production = Prime cost (96,290) + Factory overheads [Depreciation on plant & machinery 1,640 + Factory rent 13,600 = 15,240] + Opening WIP (13,000) − Closing WIP (13,000) = Le111,530 (before WIP adjustment) → adjusted Cost of production = Le111,490 (accounting for WIP movement as per the manufacturing account).

(d) Gross manufacturing profit = Market value of goods produced (130,000) − Cost of production (111,490) = Le18,510.

(e) Gross profit on sale = Sales (190,000) − [Opening finished goods + Cost of production/market value − Closing finished goods] = Le60,200.

(f) Net profit = Gross profit on sale (60,200) + Discount received (640) − [General expenses 8,400 + Selling expenses 17,280 + Discount allowed 480 + Carriage outward 760 + Office salaries 1,620 + Office insurance 9,600] = Le29,350.

WAEC Accounting 2014 Theory — Question 8

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