Coursebook Chapter 20 Answers
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Ahmed ZeeshanCoursebook Chapter 20 Answers
Uploaded by
Ahmed ZeeshanCambridge IGCSE and O Level Accounting
Coursebook answers
Chapter 20
Answers to test yourself questions
Test yourself 20.1
1 Direct factory wages are the wages of the people employed in the factory making the goods.
Indirect factory wages are the wages of people employed in the factory but who are not
involved in the actual production process.
2 Royalties and hire of a special machine, or any other suitable direct expense.
3 a Factory overhead
b Direct material
c Factory overhead
d Direct labour
e Factory overhead
f Direct materials
Test yourself 20.2
1 Prime cost is the total of the direct materials, direct labour and direct expenses. It is the cost of
the essentials necessary for production.
2 An alternative name for factory overheads is indirect factory expenses.
1
Test yourself 20.3
1 Work in progress is the goods which are partly completed at the end of the financial year.
2 It is necessary to make an adjustment for work in progress so that the cost of production only
represents the cost of goods actually completed during the financial year.
Test yourself 20.4
1 It is necessary to include the production cost of goods completed in the trading section of the
income statement because the business has actually made the goods instead of purchasing
them ready-made. For most manufacturers the cost of production replaces the purchases in
the trading section of the income statement.
2 A manufacturing business may sometimes purchase finished goods when production does
not meet demand, when it is cheaper to buy the goods rather than make them, or when those
particular items cannot be made by the business.
Answers to exam-style questions
1 B
2 D
3 C
© Cambridge University Press 2018
Cambridge IGCSE and O Level Accounting
4 a
Leeford Manufacturers Ltd
Manufacturing account for the year ended 30 September 20–8
$ $
Cost of material consumed
Opening inventory of raw material 41 800
Purchases of raw material 495 800
537 600
Less Closing inventory of raw material 443 200 494 400
Direct wages 452 750
Prime cost 547 150
Factory overheads
Factory indirect salaries 29 760
Factory expenses 41 840 471 600
618 750
Add Opening work in progress 418 600
637 350
Less Closing work in progress 417 850
Cost of production 619 500
b Two from:
• revenue
• opening inventory of finished goods
2
• closing inventory of finished goods
• purchases of finished goods
• office and sales salaries.
These items are not part of the cost of manufacturing. The first four are connected with
finished goods and appear in the trading section of the income statement. The last item is
an office/selling expense and appears in the profit and loss section of the income statement.
5 a i Direct costs are those costs in a manufacturing business which can be traced directly to the
item being manufactured. They include direct material, direct labour and direct expenses.
Indirect costs are those costs in a manufacturing business which cannot be traced
directly to the item being manufactured. They include factory overheads.
ii Prime cost is the total of the direct materials, direct labour and direct expenses. It is the
cost of the essentials necessary for production.
Cost of production is the prime cost plus factory overheads, plus opening work in
progress and less closing work in progress.
b Work in progress is the goods which are partly made at the end of the financial year.
c A manufacturer may purchase finished goods if he is unable to meet demand, if it is cheaper
to buy rather than make or if he cannot make those particular items.
d i Prime cost = cost of material consumed: opening inventory of raw material 4 750 +
purchases 49 590 + carriage on purchases 3 710 − closing inventory of raw materials
4 850 = 53 200 + direct wages 61 940, direct factory expenses 2 960
Prime cost: 118 100
ii Cost of production = prime cost 118 100 + overheads (indirect factory wages 29 660 +
factory indirect expenses 48 930) 78 590 = 196 690 + opening work in progress 5 600 −
closing work in progress 4 300
Cost of production: 197 990
© Cambridge University Press 2018
Cambridge IGCSE and O Level Accounting
6 a
Farouk
Manufacturing account for the year ended 31 March 20–6
$ $
Cost of material consumed
Purchases of raw material 22 800
Carriage on raw material 41 300
24 100
Less Closing inventory of raw material 42 520 21 580
Direct wages 27 200
Prime cost 48 780
Factory overheads
Factory supervisors’ salaries 10 400
General expenses (4800 × 2/3) 3 200
Rent and rates (5100 × 2/3) 3 400
Depreciation factory machinery (25% × 28 000) 7 000
Depreciation factory hand tools (800 – 650) 4150 24 150
72 930
Less Closing work in progress 42 140
Cost of production 70 790
b 3
Farouk
Income statement for the year ended 31 March 20–6
$ $
Revenue 100 400
Less Cost of sales
Cost of production 70 790
Purchases of finished goods 12 200
82 990
Less Closing inventory of finished goods 5 210 77 780
Gross profit 22 620
Less Wages of office staff 15 400
General expenses (4 800 × 1/3) 1 600
Rent and rates (5 100 × 1/3) 1 700
Depreciation office fixtures and fittings
(10% × 6 500) 44650 19 350
Profit for the year 43 270
