Manufacturing
, 4
2 Helen Tong is a manufacturer of one type of high quality office desk.
Helen provides the following information from her trial balance at 31 December 2007:
$
Sales 1 750 000
Purchases of raw materials 230 400
Factory overheads 215 000
Manufacturing royalties 17 500
Direct wages 358 210
Additional information:
1 4000 desks were manufactured during the year ended 31 December 2007.
2 Helen transferred the value of these desks during the year from her manufacturing account
to her trading account at a total price of $1 126 140. This represents a mark up over cost,
equivalent to the price Helen would have had to pay if she had purchased the desks from an
outside supplier.
3 Helen maintains stocks of raw materials at a constant value of $10 000 and stocks of work in
progress at a constant value of $12 500.
4 At 31 December 2006 completed goods had been transferred from the manufacturing
account to the trading account at cost plus 29 %. Stocks of finished goods were valued at
transfer price of $18 769 at 31 December 2007.
5 An extract from Helen’s balance sheet at 31 December 2006 shows:
$
Stocks at cost – Raw materials 10 000
Work in progress 12 500
Finished goods 12 300
6 At 31 December 2007:
Manufacturing royalties paid in advance amounted to $400.
Direct wages remaining unpaid amounted to $1290.
7 80 % of factory overheads are fixed costs; the remainder are variable costs.
© UCLES 2008 9706/04/M/J/08
, 5
REQUIRED
(a) Prepare a manufacturing account for the year ended 31 December 2007. [6]
(b) Prepare a trading account for the year ended 31 December 2007. [9]
(c) Prepare a provision for unrealised profit account for the year ended 31 December 2007. [10]
(d) Calculate in units the margin of safety achieved by the factory in 2007. [9]
(e) Calculate the value of the goods transferred from the factory at the break-even level of
output. [3]
(f) Explain one reason why a manufacturing business might continue to manufacture goods
despite the fact that it may be cheaper to purchase the goods from an outside supplier. [3]
[Total: 40]
© UCLES 2008 9706/04/M/J/08 [Turn over
, 2
1 Nathan Akrill is a sole trader who has successfully run a manufacturing business for
many years. His business manufactures one product, the squam.
On 1 January 2011 there were 1000 squams in inventory. During the year 10 318
squams were produced by the factory and transferred to the sales department. On
31 December 2011 there were 1240 squams in inventory. Nathan Akrill uses the FIFO
method of inventory valuation.
Production is transferred from the factory to the sales department at cost plus 40%.
Unfortunately the book-keeper was taken ill at the year end and Nathan Akrill decided
he would have to produce his financial statements himself. He did not know how to
value the inventory of finished goods at that date. Therefore he decided to value each
squam at the same value as had been used on 1 January 2011.
Nathan Akrill produced the following:
Income statement for the year ended 31 December 2011
$ $ $
Revenue 880 000
Inventory at 1 January 2011
Raw materials 31 000
Finished goods 58 800
89 800
Purchases of raw materials 261 000
350 800
Inventory at 31 December 2011
Raw materials 46 400
Finished goods 72 912 119 312
Cost of sales 231 488
Gross profit 648 512
Manufacturing wages 166 000
Supervisory wages 42 800
Factory rent 36 000
Office rent 21 000
Depreciation of factory machinery 13 800
Depreciation of office equipment 2 900
Direct expenses 9 200
Carriage on raw materials 2 500
Administrative and selling expenses 201 000
495 200
Profit for the year 153 312
.
© UCLES 2012 9706/43/O/N/12
, 4
2 Helen Tong is a manufacturer of one type of high quality office desk.
Helen provides the following information from her trial balance at 31 December 2007:
$
Sales 1 750 000
Purchases of raw materials 230 400
Factory overheads 215 000
Manufacturing royalties 17 500
Direct wages 358 210
Additional information:
1 4000 desks were manufactured during the year ended 31 December 2007.
2 Helen transferred the value of these desks during the year from her manufacturing account
to her trading account at a total price of $1 126 140. This represents a mark up over cost,
equivalent to the price Helen would have had to pay if she had purchased the desks from an
outside supplier.
3 Helen maintains stocks of raw materials at a constant value of $10 000 and stocks of work in
progress at a constant value of $12 500.
4 At 31 December 2006 completed goods had been transferred from the manufacturing
account to the trading account at cost plus 29 %. Stocks of finished goods were valued at
transfer price of $18 769 at 31 December 2007.
5 An extract from Helen’s balance sheet at 31 December 2006 shows:
$
Stocks at cost – Raw materials 10 000
Work in progress 12 500
Finished goods 12 300
6 At 31 December 2007:
Manufacturing royalties paid in advance amounted to $400.
Direct wages remaining unpaid amounted to $1290.
7 80 % of factory overheads are fixed costs; the remainder are variable costs.
© UCLES 2008 9706/04/M/J/08
, 5
REQUIRED
(a) Prepare a manufacturing account for the year ended 31 December 2007. [6]
(b) Prepare a trading account for the year ended 31 December 2007. [9]
(c) Prepare a provision for unrealised profit account for the year ended 31 December 2007. [10]
(d) Calculate in units the margin of safety achieved by the factory in 2007. [9]
(e) Calculate the value of the goods transferred from the factory at the break-even level of
output. [3]
(f) Explain one reason why a manufacturing business might continue to manufacture goods
despite the fact that it may be cheaper to purchase the goods from an outside supplier. [3]
[Total: 40]
© UCLES 2008 9706/04/M/J/08 [Turn over
, 2
1 Nathan Akrill is a sole trader who has successfully run a manufacturing business for
many years. His business manufactures one product, the squam.
On 1 January 2011 there were 1000 squams in inventory. During the year 10 318
squams were produced by the factory and transferred to the sales department. On
31 December 2011 there were 1240 squams in inventory. Nathan Akrill uses the FIFO
method of inventory valuation.
Production is transferred from the factory to the sales department at cost plus 40%.
Unfortunately the book-keeper was taken ill at the year end and Nathan Akrill decided
he would have to produce his financial statements himself. He did not know how to
value the inventory of finished goods at that date. Therefore he decided to value each
squam at the same value as had been used on 1 January 2011.
Nathan Akrill produced the following:
Income statement for the year ended 31 December 2011
$ $ $
Revenue 880 000
Inventory at 1 January 2011
Raw materials 31 000
Finished goods 58 800
89 800
Purchases of raw materials 261 000
350 800
Inventory at 31 December 2011
Raw materials 46 400
Finished goods 72 912 119 312
Cost of sales 231 488
Gross profit 648 512
Manufacturing wages 166 000
Supervisory wages 42 800
Factory rent 36 000
Office rent 21 000
Depreciation of factory machinery 13 800
Depreciation of office equipment 2 900
Direct expenses 9 200
Carriage on raw materials 2 500
Administrative and selling expenses 201 000
495 200
Profit for the year 153 312
.
© UCLES 2012 9706/43/O/N/12
