PRUDY MANUFACTURERS The information relates to the financial year ended 28 February 2021 - NSC Accounting - Question 2 - 2021 - Paper 2

To prepare the Production Cost Statement, we first identify and summarize all relevant costs incurred during the financial year:

1. Calculate Direct Material Cost

The direct material cost is given as R1,494,000.

2. Calculate Direct Labour Cost

The direct labour cost can be calculated from the total wages paid:

• Net Wages Paid: R647,400 represents 22% of the gross wages.

• Therefore, total gross wages can be calculated as:

  ext{Gross Wages} = rac{647400}{0.22} = R2,941,818.18

• Direct Labour Cost: R274,400.

3. Calculate Factory Overhead Cost

The factory overhead is initially reported as R520,280 but must be adjusted based on the following errors:

• The adjustment for the telephone account (R22,400) and the rent expense (R98,400) need to be recategorized:

  • Rent allocation:
    • Total Rent: R98,400 must be split into:
    • Factory: 7/10 of R98,400 = R68,880
    • Sales: 2/10 of R98,400 = R19,680
    • Admin: 1/10 of R98,400 = R9,840

• The corrected factory cost:

  $ext{Adjusted Factory Overhead Cost} = 520280 - 22400 + 68880 = R526,760$.

4. Calculate Cost of Production

The total cost of production is given as:

• Cost of Production of Finished Goods = Direct Material Cost + Direct Labour Cost + Adjusted Factory Overhead Cost

  $ext{Total Cost of Production} = 1494000 + 274400 + 526760 = R2,795,160$.

This is presented as:

Production Cost Statement