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MOSES MANUFACTURERS The following information relates to Moses Manufacturers, a small business that manufactures photo frames - NSC Accounting - Question 5 - 2017 - Paper 1
Question 5
MOSES MANUFACTURERS The following information relates to Moses Manufacturers, a small business that manufactures photo frames. The financial year ended on 30 April ... show full transcript
Worked Solution & Example Answer:MOSES MANUFACTURERS The following information relates to Moses Manufacturers, a small business that manufactures photo frames - NSC Accounting - Question 5 - 2017 - Paper 1
Step 1
Prepare the Production Cost Statement for the year ended 30 April 2016.
Answer
To prepare the Production Cost Statement, we need to calculate the various costs based on the provided information.
Direct Material Cost
- Purchases of raw materials = R556,000
- Raw material stock at the beginning (1 May 2015) = R37,600
- Raw material stock at the end (30 April 2016) = R58,560
- Defective material returned = R21,000
Using the following formula:
Direct Material Cost = Purchases - (Raw Material Stock (end) - Raw Material Stock (begin) + Defective Material)
= 556,000 - (58,560 - 37,600 + 21,000) = 513,040
Total Manufacturing Cost
- Direct Labour Cost = R716,960
- Factory Overhead = R468,450
- Prime Cost = Direct Material Cost + Direct Labour Cost = 513,040 + 716,960 = R1,230,000
- Total Manufacturing Cost = Prime Cost + Factory Overhead = 1,230,000 + 468,450 = 1,698,450
Work-in-Process
Beginning Work-in-Process Value = R1,842,000 Ending Work-in-Process Value = R87,000
Cost of Production of Finished Goods
Cost of Production of Finished Goods = Total Manufacturing Cost - Ending Work-in-Process = 1,698,450 - 87,000 = R 1,611,450.
Step 2
Complete the abridged (shortened) Income Statement to calculate the net profit for the year ended 30 April 2016.
Answer
Abridged Income Statement
- Gross Profit = R1,250,000
- Selling and Distribution Cost = R609,850
- Administration Cost = R443,950
Using the formula:
gross profit = Revenue - Costs
Calculation of Net Profit
Net Profit = Gross Profit - Selling and Distribution Cost - Administration Cost
Substituting the values we calculated:
Net Profit = 1,250,000 - 609,850 - 443,950 Net Profit = 196,200
Thus, the net profit for the year ended 30 April 2016 is R197,750.