5.5. Manufacturing accounts
A subsection of Accounting, 7707, through 5. Preparation of financial statements
Listing 10 of 33 questions
Salman owns a footwear factory. He sells to all of the three local shoe shops. Salman prepares his financial statements to 30 April each year. At 30 April 2023, Salman’s ledger account balances included the following. $ Inventory at 1 May 2022 Raw materials 8 190 Work in progress 15 200 Finished goods 23 860 Purchases of raw materials 78 420 Purchases of finished goods 90 144 Wages Factory supervisor 27 500 Factory operatives 52 396 Rates and insurance 17 528 Factory electricity 11 442 General factory expenses 8 244 Factory equipment – at cost 90 000 Factory equipment – provision for depreciation 43 920 Balance at bank 31 000 debit Additional information Inventory at 30 April 2023 Raw material 8 000 Work in progress 16 100 Finished goods 24 590 Salman applies a mark-up of 50% to his cost of sales. Rates and insurance are to be apportioned three quarters to the factory and one quarter to the office. At 30 April 2023, factory electricity of $1048 was unpaid. Factory equipment is depreciated at 20% per annum using the reducing balance method. REQUIRED Prepare Salman’s manufacturing account for the year ended 30 April 2023. Salman Manufacturing Account for the year ended 30 April 2023 $ $ Prepare the trading section of Salman’s income statement for the year ended 30 April 2023. Salman Income Statement (trading section) for the year ended 30 April 2023 $ $ Salman is considering converting some of his office space into additional factory capacity. Advise Salman whether he should convert some of his premises from office use to factory use. Justify your answer by providing arguments for and against this conversion of office space into additional factory capacity.
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THEORY
2023
Paper 2, Variant 1
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Toyah owns a factory which makes dolls’ houses. Her financial year end is 31 January. At 31 January 2024, her ledger accounts included the following balances. $ Inventory at 1 February 2023 Raw materials 12 400 Work in progress 16 970 Finished goods 14 825 Revenue 390 100 Purchases of raw materials 143 000 Wages Factory operatives 51 000 Factory supervisor 19 000 Sales staff 30 000 Factory electricity 16 000 Rates and insurance 16 200 General factory expenses 6 155 Factory machinery – at cost 120 000 Factory machinery – provision for depreciation 52 500 Additional information 1. Inventory at 31 January 2024 Raw material 11 205 Work in progress 17 682 Finished goods 13 480 2. Rates and insurance are to be apportioned 2/3 to the factory and 1/3 to the office. 3. At 31 January 2024, general factory expenses of $235 were unpaid. 4. Factory machinery is depreciated at 25% per annum using the reducing balance method. REQUIRED Prepare Toyah’s manufacturing account for the year ended 31 January 2024. Toyah Manufacturing Account for the year ended 31 January 2024 $ $ …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. Prepare Toyah’s income statement (trading section) for the year ended 31 January 2024. Toyah Income statement (trading section) for the year ended 31 January 2024 $ $ …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. The factory produced 6936 dolls’ houses during the year ended 31 January 2024. REQUIRED Calculate the manufacturing cost of each dolls’ house. Round up your answer to the nearest dollar. Idir, a competitor of Toyah’s, has decided to cease trading. He has offered to sell his inventory of finished goods to Toyah at a discounted price in return for immediate payment in cash. The total price for these items is $9600. Toyah has $1415 cash at bank. REQUIRED Advise Toyah whether or not she should buy Idir’s inventory. Justify your answer by providing two points for and two points against buying this inventory. .
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THEORY
2024
Paper 2, Variant 2
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On 31 July 2021 the following information was provided by KA Limited, a manufacturer of garden tools. $ Inventory 1 August 2020 Raw materials 5 820 Work in progress 1 750 Finished goods 12 360 Purchases Raw materials 34 200 Finished goods 3 900 Carriage on purchases Raw materials Finished goods Direct wages 67 200 Indirect factory wages 24 000 Factory machinery at cost 47 000 Provision for depreciation of factory machinery 11 000 Factory general overheads 16 400 Rates 5 300 Inventory 31 July 2021 Raw materials 6 030 Work in progress 2 780 Finished goods 10 340 Revenue 223 000 Additional information On 31 July 2021 rates, $500, were prepaid. Rates are to be apportioned 75% factory, 25% office. On 31 July 2021 factory general overheads, $230, were accrued. Factory machinery is to be depreciated at 20% per annum using the reducing balance method. REQUIRED Prepare the manufacturing account of KA Limited for the year ended 31 July 2021. Prepare the income statement (trading section) of KA Limited for the year ended 31 July 2021. KA Limited Income Statement (Trading section) for the year ended 31 July 2021 ………………………………………………………… ………………………………………………………… ………………………………………………………… ………………………………………………………… ………………………………………………………… ………………………………………………………… ………………………………………………………… ………………………………………………………… ………………………………………………………… ………………………………………………………… ………………………………………………………… ………………………………………………………… ………………………………………………………… ………………………………………………………… ………………………………………………………… ………………………………………………………… $ …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… $ …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… DH Limited, a customer of KA Limited, has been declared bankrupt. A debt of $350 was owing to KA Limited. This is to be written off. REQUIRED Prepare the journal entry to record the irrecoverable debt. A narrative is not required. KA Limited Journal Details Debit $ Credit $ KA Limited maintains a provision for doubtful debts. REQUIRED Explain how maintaining a provision for doubtful debts is an application of each of the following accounting principles. Matching Prudence
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THEORY
2021
Paper 2, Variant 2
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Sara owns a clothing factory. She sells the clothing to a small number of local shops. She allows 30 days credit. At 30 September 2023, Sara’s ledger account balances included the following. $ Inventory at 1 October 2022 Raw materials 4 875 Work in progress 8 125 Finished goods 12 890 Purchases of raw materials 56 400 Wages Machine operators 43 300 Factory supervisor 25 000 Delivery vehicle driver 14 250 Rates and insurance 29 600 General factory expenses 9 650 Factory machinery – at cost 80 000 Factory machinery – provision for depreciation 35 000 Trade receivables 27 000 Cash at bank 1 050 Additional information 1. Inventory at 30 September 2023 Raw material 5 110 Work in progress 7 365 Finished goods 13 725 2. At 30 September 2023 general factory expenses of $335 were unpaid. 3. Insurance of $8000 had been paid for the year July 2023 to June 2024. 4. Rates and insurance are to be apportioned equally between the factory and the office. 5. Factory machinery is depreciated at 25% per annum using the reducing balance method. REQUIRED Prepare Sara’s manufacturing account for the year ended 30 September 2023. Sara Manufacturing Account for the year ended 30 September 2023 …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… $ …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… $ …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… Prepare the current assets section of Sara’s statement of financial position at 30 September 2023. Sara Statement of financial position (current assets section) at 30 September 2023 …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… $ …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… $ …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… Sara’s factory supervisor is very efficient at running the factory. REQUIRED State which accounting principle Sara is complying with by not recording any value for this efficiency in her financial statements. Sara has now been asked to supply a local drama school with theatrical costumes. The drama school would place an order with Sara each month and would require 60 days credit. REQUIRED Advise Sara whether she should start supplying the drama school with costumes. Justify your answer by providing advantages and disadvantages of supplying the costumes.
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THEORY
2023
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Hilary owns a manufacturing business. She has provided the following information. $ Inventory at 1 August 2022 Raw materials 9 100 Work in progress 21 357 Finished goods 24 235 For the year ended 31 July 2023 Revenue 457 250 Purchases of raw materials 110 000 Purchases returns of raw materials 2 200 Purchases of finished goods 23 500 Purchases returns of finished goods 4 700 Wages of factory operatives 91 665 Wages of factory supervisor 29 000 Wages of office supervisor 28 000 Heat, light and power 11 600 Rates and insurance 8 250 Factory repairs and renewals 5 125 Factory equipment – at cost 124 000 Factory equipment – provision for depreciation 35 500 Additional information Inventory at 31 July 2023 Raw material 9 980 Work in progress 22 446 Finished goods 25 110 Heat, light and power is to be apportioned 4/5 to the factory and 1/5 to the office. Rates and insurance is to be apportioned 3/5 to the factory and 2/5 to the office. Insurance of $4440 has been paid for the year to 31 December 2023. At 31 July 2023, a factory repair, $644, was unpaid and no adjustment had been made. Factory equipment is depreciated at 25% per annum using the reducing balance method. REQUIRED Prepare Hilary’s manufacturing account for the year ended 31 July 2023. Hilary Manufacturing Account for the year ended 31 July 2023 $ $ Calculate Hilary’s gross profit for the year ended 31 July 2023. Hilary is considering stopping buying any finished goods for resale and instead increasing the production at her factory. REQUIRED Advise Hilary whether she should sell only production from her own factory and increase the amount produced. Justify your answer by providing arguments for and against selling only production from her own factory and increasing the amount produced.
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THEORY
2023
Paper 2, Variant 3
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Questions Discovered
33