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2.1 Prepare the Production Cost Statement - NSC Accounting - Question 2 - 2020 - Paper 2
Question 2
2.1 Prepare the Production Cost Statement. The business produces formal shirts. The financial year ended 28 February 2021. **INFORMATION:** A. Stock on hand: 28 ... show full transcript
Worked Solution & Example Answer:2.1 Prepare the Production Cost Statement - NSC Accounting - Question 2 - 2020 - Paper 2
Step 1
Prepare the Production Cost Statement.
Answer
To prepare the Production Cost Statement for the year ended 28 February 2021, we need to calculate the corrected costs based on the provided information and errors:
Direct Material Cost
- Corrected Direct Material Cost:
R1 575 000 (original) + R75 000 (carriage wrongly allocated) = R1 650 000
Direct Labour Cost
- Direct Labour Cost: R900 000
Factory Overhead Cost
- Original Factory Overhead Cost: R518 800
- Adjusted for incorrectly allocated water and electricity:
-
R117 600 must be allocated correctly as follows:
-
New allocation ratio: 5 : 4 : 1
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New overhead: R518 800 - R117 600 = R401 200
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Actual Factory Overhead Cost: R401 200 / 10 * 5 = R200 600 (for factory)
-
- Adjusted for incorrectly allocated water and electricity:
Total Manufacturing Cost Calculation
- Total Manufacturing Cost = Direct Material + Direct Labour + Factory Overhead
= R1 650 000 + R900 000 + R200 600 = R2 750 600
Work-in-progress Calculation
- Work-in-progress (beginning) = ?
- Work-in-progress (end) = (Total Cost - Total Finished Goods)
= R3 066 000 - R342 000 = R2 724 000
Total Cost of Production
- Final Total Cost of Production = 7600 shirts produced = R2 724 000
Step 2
Calculate: Gross profit earned on sale of shirts.
Answer
To calculate the gross profit earned on the sale of shirts, we use the following formula:
Gross Profit Formula
- Gross Profit = Total Sales - Cost of Goods Sold
= Total Sales (R4 860 000) - Cost of Production (R2 724 000)
Calculation
- Gross Profit = R4 860 000 - R2 724 000 = R2 136 000
Step 3