ANSWER THE FOLLOWING
1.The following balances were extracted from the books of Dreamers Designs, a manufacturer of
bedroom furniture, at 31 December 2022:
Opening Inventory Closing Inventory
$ $
Raw materials 46.000 49.000
Work in progress 34.000 32.000
Finished goods 25.000 27.000
Purchases of raw materials 345.000
Purchases of finished goods 60.000
Sales of finished goods 1.560.000
Office salaries 90.500
Light and heat 18.000
Factory wages 190.000
Factory manager’s salary 50.800
Manufacturing royalties 28.000
Rent 36.000
Insurance 23.000
Fuel and power 54.000
Carriage inwards of raw materials 48.000
Returns inwards 60.000
Plant and machinery at cost 480.000
Accumulated depreciation of plant and machinery 140.000
Additional information at 31 December 2022:
1. 80% of the light & heat is utilized in the factory
2. Factory wages accrued amounted to $ 2.000, five-sixths (5/6) of wages are direct and one-sixth (1/6) is
indirect
3. Rent paid in advance $ 3.000, and Insurance accrued $ 1.000
4. Rent and insurance are to be apportioned as follows:
i. Factory 2/3 ii. Office 1/3
5. Plant and machinery is depreciated at 25% per annum using the reducing balance method
6. Goods manufactured should be transferred to Income Statement at a standard cost of $ 900.000.
REQUIRED:
Prepare the Manufacturing Account for the year ended 31 December 2022.
2.Wincombe Manufacturing produces a single product. The following were some of the balances in the
books of account on 31 December 2022.
Revenue 811 000
Wages
Manufacturing 197 000
Administrative 78 000
Non-current assets (cost)
Manufacturing machinery 120 000
Computer equipment 60 000
Office fixtures 45 000
Provisions for depreciation
Manufacturing machinery 40 000
Computer equipment 12 000
Office fixtures 25 000
Management salaries 125 000
Purchases of raw materials 204 000
Purchase returns of raw materials 6 800
Advertising expenses 20 850
Rent and rates payable 18 000
Rent receivable 7 500
Manufacturing expenses
Direct 11 800
Indirect 29 200
Insurance 10 000
Royalties paid 12 500
Power and water 29 300
Trade receivables 96 000
Irrecoverable debts 3 650
Trade payables 71 400
Bank 25 600 Cr
Provision for unrealised profit 2 000
Allowance for irrecoverable debts 2 900
Inventory at 1 January 2022
Raw materials 36 900
Work in progress 46 700
Finished goods 64 000
Additional information at 31 December 2022
(1) Inventory
Raw materials $ 27 900 Work in progress $ 45 600 Finished goods $ 58 500
(2) Royalties had been paid on 25 000 units. They were outstanding on a further 5 000 units.
(3) Power was $ 1 100 accrued and water was £400 prepaid.
(4) Depreciation is charged on all non-current assets owned at the end of the year as follows.
– Manufacturing machinery at the rate of 15% per annum using the straight-line method.
– Computer equipment at the rate of 25% per annum using the reducing balance method.
– Office fixtures at the rate of 10% per annum using the straight-line method.
(5) Expenses are to be apportioned between manufacturing and administration as follows.
Expense Basis of apportionment Manufacturing Administration
Management salaries Number of staff 21 4
Rent and rates payable Floor area (sq m) 11 000 4 000
Insurance Agreed estimate 60% 40%
Power and water Usage 70% 30%
Computer equipment depreciation Hours usage per annum 4 000 8 000
(6) The provisions are to be adjusted as follows.
– Unrealised profit is to be reduced by $ 500
– Irrecoverable debts are to be maintained at 5% of trade receivables.
(7) Finished goods are transferred from manufacturing to the warehouse at a transfer price of $ 21.50
per unit. During the year 30 000 units were transferred.
Required
(a) Prepare for the year ended 31 December 2022, the:
(i) Manufacturing Account
(ii) Statement of Profit or Loss and Other Comprehensive Income
(iii) Provision for Unrealised Profit Account.
MARKING SCHEME
Dreamers Designs
Manufacturing A/c for the year ended 31 December 2022
$ $
Raw Materials:
Opening inventory 46.000
Add Purchases 345.000
Add Carriage Inwards 48.000
Less Closing inventory 49.000
Cost of Raw Materials used 390.000
Direct Wages(190.000 +2.000)x5/6 160.000
Royalties 28.000
PRIME COST 578.000
Factory overhead
Light and heat (18.000x80%) 14.400
Fuel and Power 54.000
Factory Rent (36.000-3.000)x2/3 22.000
Factory Insurance(23.000+1.000) x 2/3 16.000
Indirect Wages(190.000 +2.000)x1/6 32.000
Factory manager’s Salaries 50.800
Depreciation on Plant & Machinery
(480.000– 140.000) x25% 85.000 274.200
Work in Progress
Add work in progress at start 34.000
Less work in progress at end (32.000) 2.000
COST OF PRODUCTION 854.200
Manufacturing Profit 45.800
Cost of goods transfer to Income Statement 900.000
Wincombe Manufacturing Manufacturing Account
For the year ended 31 December 2022 £ £
Opening inventory of raw materials 36 900
Purchases of raw materials 204 000
Returns of raw materials (6 800)
234 100
Closing inventory of raw materials (27 900)
Cost of raw materials 206 200 AO3(1)
Manufacturing wages 197 000 AO1(1)
Royalties (12 500 + 2 500) 15 000 AO2(1)
Direct expenses 11 800 AO1(1)
Prime cost 430 000 AO3 (1of) +w
No aliens
Production overheads:
Management salaries 105 000
AO2(1)
Indirect expenses 29 200 AO1(1)
Rent and rates payable 13 200 AO2(1)
Insurance 6 000 AO2(1)
Power and water 21 000 AO3(1)
Depreciation – Manufacturing 18 000 AO2(1)
machinery
Depreciation – Computer equipment 4 000 AO3(1)
196 400
626 400 AO2 (1of)
Work in progress – 1 January 46 700 No aliens
2022
31 December (45 600) 1 100 AO2(1)
2022
Cost of production 627 500 AO1(1of) +w
Profit on manufacture 17 500 AO2 (1of)
+w
Transfer value / Trading 645 000 AO2 (1) +w
Account
Statement of Profit or Loss and Other £
Comprehensive Income for the year
ended 31 December 2022 £
Income
Revenue 811 000
Less
Opening inventory of finished goods 64 000
Goods transferred from manufacturing 645 000 AO1(1of)
709 000
Closing inventory of finished goods (58 500)
Cost of sales: (650 500) AO2(1of)
+w
Gross profit 160 500 AO2(1of)
+w
Other incomes
Rent received 7 500 AO1(1)
Profit on manufacturing 17 500 AO2(1of)
Reduction in provision for unrealised 500 AO2(1)
profit
Less Expenses
Administrative wages 78 000 AO1(1)
Management salaries 20 000 AO2(1)
Advertising expenses 20 850 AO2(1)
Rent and rates payable 4 800 AO2(1)
Insurance 4 000 AO2(1)
Power and water 9 000 AO2(1)
Irrecoverable debts 3 650 AO1(1)
Depreciation – Computer equipment 8 000 AO3(1)
Office fixtures 4 500 AO2(1)
Irrecoverable debts allowance increase 1 900 AO1(1)
Provision for legal claim 7 800 AO2(1)
(162 500)
Profit for the year 23 500
AO2(1of)+w
No aliens
Provision for Details £ Date Details £
Unrealised
Profit Account
Date
2022 2022
31 Income 500 AO2(1) 1 Jan Balance b/d 2 000 AO1(1)
Dec statement
Balance c/d 1 500 AO1(1)
2 000 2 000
2023
1 Jan Balance b/d 1 500 AO1(1)
