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Manufacturing Account Worked Example Question 7

This document provides a worked example of a manufacturing account and income statement for the year ended 31 March 2012. It shows the calculation of various manufacturing costs including raw materials, direct costs, factory overheads and changes in work-in-progress inventory. It then calculates cost of sales and deducts this from revenue to determine gross profit. Various expenses are then deducted to calculate net profit for the year of $791,200. The document concludes with a brief explanation of the prudence concept in accounting.

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Roshan Ramkhalawon
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610 views

Manufacturing Account Worked Example Question 7

This document provides a worked example of a manufacturing account and income statement for the year ended 31 March 2012. It shows the calculation of various manufacturing costs including raw materials, direct costs, factory overheads and changes in work-in-progress inventory. It then calculates cost of sales and deducts this from revenue to determine gross profit. Various expenses are then deducted to calculate net profit for the year of $791,200. The document concludes with a brief explanation of the prudence concept in accounting.

Uploaded by

Roshan Ramkhalawon
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Manufacturing Account Worked Example

Question 7

Interest on loan = 10% X 100 000 = $10 000


Opening provision for doubtful debt = 3800
Closing provision for doubtful debt = 5% X 83 000 = 4150
Increase in provision for doubtful debt = 350

MA = 4/5 X (38 000 + 950) = 31160


IS = 1/5 X (38 000 + 950) = 7790

Depreciation = 5% X 600 000 = $30 000


Ma = 4/5 X 30 000 = 24 000
IS = 1/5 X 30 000 = 6000

Depreciation on factory machinery = 15% X (220 000 – 40 000) = $27000


Manufacturing Account for the year ended 31 March 2012
Cost of Raw Materials Consumed
Opening inventory of Raw Materials 53000
Add Purchases of Raw Materials 800000
Add carriage inwards on raw materials 6000
Less returns outwards of raw materials (18500)
840500
Less closing inventory of Raw Materials (47000)
Cost of Raw Materials Consumed 793500
Add Direct Costs
Direct wages 450000
Prime Cost 1243500
Add Factory overheads
Indirect wages 68000
Rates and insurance 31160
General factory overheads 93000
Depreciation on premises 24000
Depreciation on factory machinery 27000 243160
1486660
Work-in-Progress
Opening inventory work-in-progress 80000
Less closing inventory work-in-progress (92000)
Increase in work-in-progress (12000)
Cost of production 1474660
Income Statement for the year ended 31 March 2012
Revenue 2500000
Less sales returns (22000)
Net Revenue 2478000
Less cost of sales
Opening inventory finished goods 76000
Add cost of production 1474660
1550660
Less closing inventory finished goods (68000) (1482660)
Gross Profit 995340
Less Expenses
Rates and insurance 7790
Interest on loan 10000
Office salaries 80000
General office expenses 100000
Increase in provision for doubtful debt 350
Depreciation on premises 6000 (204140)
Profit for the year 791200

According to the prudence concept, a business should anticipate for all possible
losses but should not anticipate for profit so that assets and profit are not overstated.
Examples:
- Providing for depreciation on non-current assets
- Provision for doubtful debt
- Valuation of inventory at lower of cost and net realisable

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