Manufacturing accounting-9197

Scenario 1

The following balances have been extracted from the books of Mabwe Ltd at 31 May 2016

Inventories at 1 April 2015: $

Raw materials 42 000

Finished goods (at $2 250) 247 500

Raw materials purchased 246 000

Direct labour 582 000

Factory overheads:

Variable 144 000

Fixed 645 000

Sales revenue 2 337 000

Provision for unrealised profit at 1 April 2015 41 250

Administrative and selling expenses 427 500

Additional information:

Unit product to be used for inventory valuation purposes are as follows:

Raw material 324

Direct labour 726

Overheads: Variable 180

Fixed 645

1 875

i. The unit fixed overhead cost is based on the budgeted annual production of 1 000
units.

ii. 800 units were manufactured during the year ended 31 March 2016 whilst 820 units
were sold.

iii. Finished goods are transferred from the manufacturing account to the statement of
comprehensive income at $2 250 each.

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iv. There were no opening and closing stocks of work in progress.

Question 2 For the year ended 31 March 2016 draw up

a) Manufacturing account [11]

b) Statement of comprehensive income [7]

c) Statement of financial position extract to show inventories at 31 March 2016 [3]

d) Explain the usefulness of determining profit or loss on manufacturing [4]

Scenario 2

David Beckham is a manufacturer of one type of high quality office desk.

He provides the following information from his trial balance at 31 December 2007:

Sales $ 1 750 000

Purchases of raw materials $ 230 400

Factory overheads $215 000

Manufacturing royalties $ 17 500

Direct wages $ 358 210

Additional information:

i. 1 400 desks were manufactured during the year ended 31 December 2007.

ii. David transferred the value of these desks during the year from his
manufacturing account to his trading account at a transfer price of $1 126 140.
This represents a mark-up over cost, equivalent to the price David would have
had to pay if he had purchased the desks from an outside supplier.

iii. David maintains stocks of raw materials at a constant value of $10 000 and stocks
of work in progress at a constant value of $12 500.

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iv. At 31 December 2006 completed goods had been transferred from the
manufacturing account to the trading account at cost plus 29 %. Stocks of
finished goods were valued at transfer price of $ 18 769 at 31 December 2007.

v. An extract from David’s balance sheet at 31 December 2006 shows:

vi. Stocks at cost – Raw materials $10 000; Work in progress $12 500; Finished
goods $12 300

vii. At 31 December 2007:

 Manufacturing royalties paid in advance amounted to $400.

 Direct wages remaining unpaid amounted to $1290.

 80 % of factory overheads are fixed costs; the remainder are variable costs.

Question 2

a) Prepare a manufacturing account for the year ended 31 December 2007. [10]

b) Prepare income statement for the year ended 31 December 2007. [9]

c) Prepare a provision for unrealised profit account for the year ended 31
December 2007. [3]

Scenario 3

The following balances have been extracted from the books of ABC Ltd at 31 December 2010

Inventories at 1 January 2010:

Raw materials 60 000

Work in progress 48 000

Finished goods (100 units) 66 000

Raw materials purchased 560 000

Direct labour 320 000

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Factory overheads: Variable 52 000

Fixed 64 000

Sales revenue 1 406 600

Provision for unrealised profit at 1 January 2010 6 000

Administrative and selling expenses 38 400

Factory premises depreciation 38 400

Indirect materials 21 600

Rates and insurance 25 000

Additional information:

1 600 units were manufactured during the year ended 31 December 2010 whilst 1 550 units were
sold. Finished goods are transferred from the manufacturing account to the statement of
comprehensive income at cost plus 10%. Closing stocks of work in progress amounted to $ 36 000
while closing stocks of raw materials amounted to $44 000.

There was a prepayment of $1 000 and an accrual of $3 000 on rates and insurance respectively. The
costs are shared as 80% to factory and 20% to general administration.

Question 3

For the year ended 31 December 2010 draw up

a) Manufacturing account [15]

b) Statement of comprehensive income in as much detail as is available [7]

c) Statement of financial position extract to show inventories at 31 December 2010 [3]

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