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GEVEN MANUFACTURERS The business produces wooden tables - NSC Accounting - Question 2 - 2017 - Paper 1
Question 2
GEVEN MANUFACTURERS The business produces wooden tables. REQUIRED: Prepare the following for the year ended 28 February 2017: 1. Production Cost Statement 2. Abridg... show full transcript
Worked Solution & Example Answer:GEVEN MANUFACTURERS The business produces wooden tables - NSC Accounting - Question 2 - 2017 - Paper 1
Step 1
Production Cost Statement
Answer
To prepare the Production Cost Statement, we need to calculate the relevant costs and total production:
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Direct Material Cost Calculation: Direct Material = Cost of materials + payment adjustment
Direct Material = R1,050,000 + R102,000 (correct allocation) = R1,152,000
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Direct Labour Cost: Since direct labor was unspecified, we can derive it by using the prime cost adjustment:
Total Prime Cost = R1,800,000
Prime Cost = Direct Material + Direct Labour + Factory Overhead
From above, R1,800,000 = R1,152,000 + Direct Labour + R487,200
Direct Labour = R1,800,000 - R1,639,200 = R160,800
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Factory Overhead Adjustment: After adjusting for the cleaning contract, we need to allocate 80% of R126,000 to Factory:
Factory Overhead Adjustment = R487,200 + (80% of R126,000)
= R487,200 + R100,800 = R588,000
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Total Prime Cost:
Now, summing these costs gives:
Total Prime Cost = R1,152,000 + R160,800 + R588,000 = R1,900,800
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Cost of Goods Manufactured: To find out the total production, we factor in the work in progress:
Total Production = Total Prime Cost - WIP at year-end
Considering WIP is not definitively provided, assume it as R160,000:
Total Production = R1,900,800 - R160,000 = R2,740,800
Step 2
Abridged Income Statement
Answer
To prepare the Abridged Income Statement, we need to calculate sales, cost of goods sold (COGS), and gross profit:
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Sales Revenue: Total Sales Revenue = Selling Price x Quantity Sold
Total Sales Revenue = R4,080,000
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Cost of Goods Sold (COGS): We have determined the Total Production from above:
Cost of Goods Sold = Total Production = R2,740,800 (as calculated earlier)
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Gross Profit: Gross Profit = Sales Revenue - COGS
Gross Profit = R4,080,000 - R2,740,800 = R1,339,200
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Administration and Selling/Distribution Costs: Total Operating Costs = Administration + Factory Overhead + Selling and Distribution
Total Operating Costs = R148,400 + R588,000 + R422,000 = R1,158,400
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Net Profit: Net Profit = Gross Profit - Total Operating Costs
Net Profit = R1,339,200 - R1,158,400 = R180,800
Final Abridged Income Statement:
- Sales: R4,080,000
- Cost of Sales: R2,740,800
- Gross Profit: R1,339,200
- Total Expenses: R1,158,400
- Net Profit: R180,800