Connolly Ltd has an authorised capital of €3,000,000 divided into 2,500,000 ordinary shares at €1 each and 500,000 5% preference shares at €1 each - Leaving Cert Accounting - Question 1(B) - 2021

To prepare the manufacturing account, we first need to calculate the direct costs, which include:

1. Direct Costs:

   • Opening stock of raw materials: €95,000
   • Purchases of raw materials: €655,000
   • Closing stock of raw materials: €52,400
   • Factory wages: €41,000
   • Carriage on raw materials: €13,100
   • Hire of special equipment: €45,000

   The calculation of the direct costs is as follows:

   $ext{Direct Costs} = ext{Opening Stock} + ext{Purchases} + ext{Carriage} + ext{Factory Wages} + ext{Hire of Special Equipment} - ext{Closing Stock}$ $= 95,000 + 655,000 + 13,100 + 41,000 + 45,000 - 52,400 = 695,700$

2. Factory Overheads:

   • General Factory Overheads (including suspense): €121,400
   • Depreciation Expense of Plant and Machinery (using straight-line method):
     • Cost of Plant & Machinery: €860,000
     • Lifespan: 10 years
     • Scrap Value: 5% of Cost = €43,000
     • Annual Depreciation = (Cost - Scrap) / Lifespan = (860,000 - 43,000) / 10 = €81,700.
   • Therefore, the total factory overhead is:

   $ext{Total Factory Overheads} = 121,400 + 81,700 = 203,100$

3. Total Production Costs:

   • To find the total production costs, add
   • Total Direct Costs and Total Factory Overheads:

   $ext{Total Production Cost} = 695,700 + 203,100 = 898,800$

4. Sales and Closing Stock:

   • Total Sales: €1,750,000.
   • Closing Stock of Finished Goods: €64,000.
   • Cost of Goods Sold (COGS):

   $ext{COGS} = ext{Total Production Costs} - ext{Closing Stock of Finished Goods}$ $= 898,800 - 64,000 = 834,800$

5. Gross Profit:

   $ext{Gross Profit} = ext{Sales} - ext{COGS}$ $= 1,750,000 - 834,800 = 915,200$

6. Operating Expenses:

   • Selling Expenses: €87,000.
   • Administrative Expenses: €121,800.
   • Provision for Bad Debt: Adjusted to 6% of Debtors (€174,000):

   $= 174,000 * 0.06 = 10,440$

   • Total Operating Expenses:

   $ext{Total Operating Expenses} = 87,000 + 121,800 + 10,440 = 219,240$

7. Net Profit Before Interest:

   $ext{Net Profit Before Interest} = ext{Gross Profit} - ext{Operating Expenses}$ $= 915,200 - 219,240 = 695,960$

8. Net Profit After Interest:

   • Debenture Interest = €3,200.

   $ext{Net Profit After Interest} = 695,960 - 3,200 = 692,760$

This final profit would then be reflected in the profit and loss account.