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Manufacturing Account Worked Example Question 12

This document provides a worked example of manufacturing account and income statement calculations for a factory for the year ended 31 December 2014. The manufacturing account calculates costs of raw materials, direct costs, factory overheads, and work in progress to determine a cost of production of $980,000. With a factory profit of 25% added, the cost of production at transfer price is $1,225,000. The income statement calculates revenue of $1,500,000 and deducts the cost of sales and expenses to determine a profit for the year of $190,000. It also includes workings to calculate the opening and closing provisions for unrealized profit.

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Roshan Ramkhalawon
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2K views6 pages

Manufacturing Account Worked Example Question 12

This document provides a worked example of manufacturing account and income statement calculations for a factory for the year ended 31 December 2014. The manufacturing account calculates costs of raw materials, direct costs, factory overheads, and work in progress to determine a cost of production of $980,000. With a factory profit of 25% added, the cost of production at transfer price is $1,225,000. The income statement calculates revenue of $1,500,000 and deducts the cost of sales and expenses to determine a profit for the year of $190,000. It also includes workings to calculate the opening and closing provisions for unrealized profit.

Uploaded by

Roshan Ramkhalawon
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Manufacturing Account Worked Example

Question 12

End of year
Factory profit %

Opening

Depreciation on property = 2% X (600 000 – 200 000) = $8 000


Manufacturing account = ¾ X 8 000 = $6 000
Income Statement = ¼ X 8 000 = $2 000

Factory equipment cost at start = $250 000


Office equipment cost at start = 310 000 – 250 000 = $60 000
Depreciation on factory equipment:
Existing = 10% X 250 000 = $25 000
New = 10% X 80 000 X 9/12 = $6 000
Total depreciation on factory equipment = 25 000 + 6 000 = $31 000

Depreciation on office equipment


Disposal = 10% X 20 000 X 6/12 = $1 000
Remaining = (60 000 – 20 000) X 10% = $4 000
Total depreciation on office equipment = 1 000 + 4 000 = $5 000

Opening Closing
(i). Corrected manufacturing account for the year ended 31 December 2014
Cost of raw materials consumed
Opening inventory raw materials 30000
Add Purchases of raw materials 410000
Add carriage inwards on raw materials 3000
443000
Less closing inventory of raw materials (20000)
Cost of raw materials consumed 423000
Add Direct Cost
Direct Labour 310000
Prime Cost 733000
Factory overheads
Factory overheads 230000
Depreciation on property 6000
Depreciation on factory equipment 31000 267000
1000000
Work in progress
Opening inventory work in progress 65000
Less closing inventory work in progress (85000)
Increase in work in progress (20000)
Cost of production at cost price 980000
Add factory profit (25% X 980000) 245000
Cost of production at transfer price 1225000
(ii). Corrected income statement for the year ended 31 December 2014
Revenue 1500000
Less cost of sales
Opening inventory finished goods (transfer price) 150000
Add cost of production (transfer price) 1225000
1375000
Less closing inventory finished goods (transfer price) (180000) (1195000)
Gross Profit 305000
Less Expenses
Distribution costs (110 000 – 3 000) 107000
Administrative expenses 240000
Depreciation on property 2000
Depreciation on office equipment 5000 (354000)
Loss on trading (49000)
Add Factory profit 245000
Provision for unrealised profit
Opening provision for unrealized profit (W1) 30000
Less closing provision for unrealised profit (W2) 36000
Increase in provision for unrealized profit (6000)
Realised factory profit 239000
Profit for the year 190000

Working 1 (W1)
Opening provision for unrealized profit
= (Factory profit / Cost of production at transfer price) X Opening inventory finished goods transfer price
= (245000 / 1225000) X 150000 = $30 000

Or
= Opening inventory finished goods at transfer price – Opening inventory finished goods at cost
= 150 000 – [150 000 / (1+ 0.25)]
= 150 000 – 120 000 = $30 000

Working 2 (W2)
Closing provision for unrealised profit
= (Factory profit / cost of production at transfer price) X Closing inventory finished goods at transfer price
= (245000 / 1225000) X 180 000 = $36 000
Or
= Closing inventory finished goods at transfer price – Closing inventory finished goods at cost
= 180 000 – [180 000 / (1+0.25)]
= 180 000 – 144 000 = $36 000

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