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PRUDY MANUFACTURERS The information relates to the financial year ended 28 February 2021 - NSC Accounting - Question 2 - 2021 - Paper 2
Question 2
PRUDY MANUFACTURERS The information relates to the financial year ended 28 February 2021. The business produces one style of travelling bag. The owner is Prudy Sith... show full transcript
Worked Solution & Example Answer:PRUDY MANUFACTURERS The information relates to the financial year ended 28 February 2021 - NSC Accounting - Question 2 - 2021 - Paper 2
Step 1
2.1.1 Production Cost Statement
Answer
To prepare the Production Cost Statement for the year ended 28 February 2021, we need to outline the costs involved in the manufacturing process:
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Direct Material Cost: This refers to the total raw materials issued to the factory for production, which amounts to R1 494 000.
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Direct Labour Cost: Given as R647 400, which is the net wages paid.
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Factory Overhead Cost: Initially given as R520 280, but adjustments must be made:
- Add back the telephone expense of R22 400.
- Adjust the rent of R98 400 using the ratio of 7:2:1, which gives:
- Factory portion:
- Insurance expense of R26 400:
- Factory portion:
- Total adjusted factory overhead cost = R520,280 + R22,400 + R68,880 + R15,840 = R627,400
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Total Production Costs: Summing up all the costs:
Direct Material Cost: R1 494 000
Direct Labour Cost: R647 400
Factory Overhead Cost: R627 400
Total Production Cost = R2 768 800
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Cost of Production of Finished Goods: Add the beginning finished goods stock and subtract ending finished goods stock:
Total Production Cost: R2 768 800
Add: Opening Finished Goods Stock: R72 000
Less: Closing Finished Goods Stock: R96 000
Cost of Production of Finished Goods = R2 744 800
Step 2
2.1.2 Abridged Statement of Comprehensive Income (Income Statement)
Answer
To create the Abridged Statement of Comprehensive Income, we need to lay out the sales, cost of sales, and net profit:
- Sales: R4 433 600
- Cost of Sales: This is the Cost of Production of Finished Goods calculated previously:
- Cost of Sales = R2 744 800
- Gross Profit: Calculated as Sales - Cost of Sales:
- Gross Profit = R4 433 600 - R2 744 800 = R1 688 800
- Administrative Costs: R187 760
- Selling and Distribution Costs: After adjusting, we retain this at R224 960.
- Total Operating Expenses = R187 760 + R224 960 = R412 720
- Net Profit: Finally, calculate:
- Net Profit = Gross Profit - Total Operating Expenses = R1 688 800 - R412 720 = R1 276 080.
Thus, the Abridged Statement of Comprehensive Income will show:
- Sales: R4 433 600
- Cost of Sales: R2 744 800
- Gross Profit: R1 688 800
- Operating Expenses: R412 720
- Net Profit for the year: R1 276 080.