G Limited Manufacturing Account 2024
G Limited Manufacturing Account 2024
$
Purchases:
Raw materials 68 000
Finished goods 32 413
Wages:
Factory operatives 183 700
Factory supervisors 47 200
Additional information
1 Factory machinery is to be depreciated at 15% per annum using the reducing balance
method.
3 Rates and insurance are to be apportioned 60% to the factory and 40% to the office.
REQUIRED
(a) Prepare the manufacturing account for the year ended 31 March 2024.
G Limited
Manufacturing account for the year ended 31 March 2024
$ $
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REQUIRED:
(b) Prepare the trading section of the income statement of G Limited for the year ended
31 March 2024.
G Limited
Income Statement (Trading section) for the year ended 31 March 2024
$ $
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$
Inventory at 1 August 2022
Raw materials 9 100
Work in progress 21 357
Finished goods 24 235
For the year ended 31 July 2023
Revenue 457 250
Purchases of raw materials 110 000
Purchases returns of raw materials 2 200
Purchases of finished goods 23 500
Purchases returns of finished goods 4 700
Wages of factory operatives 91 665
Wages of factory supervisor 29 000
Wages of office supervisor 28 000
Heat, light and power 11 600
Rates and insurance 8 250
Factory repairs and renewals 5 125
Factory equipment – at cost 124 000
Factory equipment – provision for depreciation 35 500
Additional information
2 Heat, light and power is to be apportioned 4/5 to the factory and 1/5 to the office.
3 Rates and insurance is to be apportioned 3/5 to the factory and 2/5 to the office. Insurance of
$4440 has been paid for the year to 31 December 2023.
4 At 31 July 2023, a factory repair, $644, was unpaid and no adjustment had been made.
5 Factory equipment is depreciated at 25% per annum using the reducing balance method.
(a) Prepare Hilary’s manufacturing account for the year ended 31 July 2023.
Hilary
Manufacturing Account for the year ended 31 July 2023
$ $
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[11]
(b) Calculate Hilary’s gross profit for the year ended 31 July 2023.
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Hilary is considering stopping buying any finished goods for resale and instead increasing the
production at her factory.
REQUIRED
(c) Advise Hilary whether she should sell only production from her own factory and increase the
amount produced. Justify your answer by providing arguments for and against selling only
production from her own factory and increasing the amount produced.
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[Total: 20]
2 Sara owns a clothing factory. She sells the clothing to a small number of local shops.
She allows 30 days credit.
$
Inventory at 1 October 2022
Raw materials 4 875
Work in progress 8 125
Finished goods 12 890
Purchases of raw materials 56 400
Wages
Machine operators 43 300
Factory supervisor 25 000
Delivery vehicle driver 14 250
Rates and insurance 29 600
General factory expenses 9 650
Factory machinery – at cost 80 000
Factory machinery – provision for depreciation 35 000
Trade receivables 27 000
Cash at bank 1 050
Additional information
3. Insurance of $8000 had been paid for the year July 2023 to June 2024.
4. Rates and insurance are to be apportioned equally between the factory and the office.
5. Factory machinery is depreciated at 25% per annum using the reducing balance method.
REQUIRED
(a) Prepare Sara’s manufacturing account for the year ended 30 September 2023.
Sara
Manufacturing Account for the year ended 30 September 2023
$ $
Sara
Statement of financial position (current assets section) at 30 September 2023
$ $
REQUIRED
(c) State which accounting principle Sara is complying with by not recording any value for this
efficiency in her financial statements.
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Sara has now been asked to supply a local drama school with theatrical costumes. The drama
school would place an order with Sara each month and would require 60 days credit.
REQUIRED
(d) Advise Sara whether she should start supplying the drama school with costumes. Justify your
answer by providing advantages and disadvantages of supplying the costumes.
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[Total: 20]
3 On 31 July 2021 the following information was provided by KA Limited, a manufacturer of garden
tools.
$
Inventory 1 August 2020
Raw materials 5 820
Work in progress 1 750
Finished goods 12 360
Purchases
Raw materials 34 200
Finished goods 3 900
Carriage on purchases
Raw materials 410
Finished goods 80
Direct wages 67 200
Indirect factory wages 24 000
Factory machinery at cost 47 000
Provision for depreciation of factory machinery 11 000
Factory general overheads 16 400
Rates 5 300
Inventory 31 July 2021
Raw materials 6 030
Work in progress 2 780
Finished goods 10 340
Revenue 223 000
Additional information
3 Factory machinery is to be depreciated at 20% per annum using the reducing balance
method.
REQUIRED
(a) Prepare the manufacturing account of KA Limited for the year ended 31 July 2021.
KA Limited
Manufacturing Account for the year ended 31 July 2021
$ $
KA Limited
Income Statement (Trading section) for the year ended 31 July 2021
$ $
Wages
Additional information
2. Rates and insurance are to be apportioned 2/3 to the factory and 1/3 to the office.
4. Factory machinery is depreciated at 25% per annum using the reducing balance method.
REQUIRED
(a) Prepare Toyah’s manufacturing account for the year ended 31 January 2024.
Toyah
Manufacturing Account for the year ended 31 January 2024
$ $
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[9]
(b) Prepare Toyah’s income statement (trading section) for the year ended 31 January 2024.
Toyah
Income statement (trading section) for the year ended 31 January 2024
$ $
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[5]
The factory produced 6936 dolls’ houses during the year ended 31 January 2024.
REQUIRED
(c) Calculate the manufacturing cost of each dolls’ house. Round up your answer to the nearest
dollar.
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Idir, a competitor of Toyah’s, has decided to cease trading. He has offered to sell his inventory of
finished goods to Toyah at a discounted price in return for immediate payment in cash. The total
price for these items is $9600. Toyah has $1415 cash at bank.
REQUIRED
(d) Advise Toyah whether or not she should buy Idir’s inventory. Justify your answer by providing
two points for and two points against buying this inventory.
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[Total: 20]
4 Salman owns a footwear factory. He sells to all of the three local shoe shops.
Salman prepares his financial statements to 30 April each year.
$
Inventory at 1 May 2022
Wages
Additional information
3 Rates and insurance are to be apportioned three quarters to the factory and one quarter to
the office.
5 Factory equipment is depreciated at 20% per annum using the reducing balance method.
REQUIRED
(a) Prepare Salman’s manufacturing account for the year ended 30 April 2023.
Salman
Manufacturing Account for the year ended 30 April 2023
$ $
[10]
(b) Prepare the trading section of Salman’s income statement for the year ended 30 April 2023.
Salman
Income Statement (trading section) for the year ended 30 April 2023
$ $
[5]
Salman is considering converting some of his office space into additional factory capacity.
(c) Advise Salman whether he should convert some of his premises from office use to factory
use. Justify your answer by providing arguments for and against this conversion of office
space into additional factory capacity.
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[Total: 20]
3 TC Limited is a manufacturing company. The company’s year end is 31 January.
On 31 January 2021, the company’s ledger account balances included the following.
$
Inventory at 1 February 2020
Raw materials 7 500
Work in progress 11 220
Finished goods 925
Purchases
Raw materials 91 400
Finished goods 6 850
Wages
Factory operatives 52 000
Factory supervisor 23 100
Rent and rates 19 620
Insurance 4 600
General factory expenses 4 200
Carriage inwards on raw materials 6 280
Factory equipment at cost 90 000
Provision for depreciation of factory equipment 30 960
Additional information
2 The factory equipment is to be depreciated at 20% per annum using the reducing balance
method.
3 In December 2020, $3600 was paid for rent for the period 1 December 2020 to
28 February 2021.
5 Rent and rates are to be apportioned equally between the factory and the office.
(a) Prepare the rent and rates account for TC Limited for the year ended 31 January 2021.
Balance the account and bring down the balances on 1 February 2021.
TC Limited
Rent and rates account
Date Details $ Date Details $
[5]
(b) Prepare the manufacturing account for TC Limited for the year ended 31 January 2021.
TC Limited
Manufacturing Account for the year ended 31 January 2021
$ $
[10]
The directors of TC Limited are considering the purchase of various low-value items of office
equipment.
REQUIRED
(c) Advise the directors whether or not they should charge depreciation on these items.
Justify your answer by providing two advantages and two disadvantages.
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[Total: 20]
3 Chippo owns a manufacturing business which produces product S. She provided the following
information for the year ended 30 April 2020.
$
Revenue 254 000
Purchases of raw materials 46 500
Purchases of finished goods 59 000
Wages of factory operatives 38 250
Royalties paid to the inventor of product S 7 690
Factory general expenses 4 500
Factory fuel and power 5 325
Rent and insurance 28 000
Factory machinery at cost 60 000
Provision for depreciation of factory machinery 21 600
Inventory at 1 May 2019: raw materials 3 120
work in progress 5 400
finished goods 8 220
Additional information
1 Factory machinery is depreciated at 20% per annum using the reducing balance method.
2 Rent and insurance is to be split equally between the factory and the office.
(a) Prepare Chippo’s manufacturing account for the year ended 30 April 2020.
Chippo
Manufacturing Account for the year ended 30 April 2020
$ $
[10]
(b) Prepare Chippo’s income statement (trading account section) for the year ended
30 April 2020.
Chippo
Income Statement (Trading Account section) for the year ended 30 April 2020
$ $
[4]
(c) Complete the table by placing a tick (ü) in the correct column, to indicate whether each of the
following actions would increase or decrease Chippo’s gross margin.
REQUIRED
(d) Advise Chippo whether or not she should convert her business to a limited company, in order
to obtain finance. Justify your answer by providing advantages and disadvantages.
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[Total: 20]
3 Pari owns a clothing factory. Her year end is 31 December.
$
Inventory at 1 January 2021
Raw materials 6 100
Work in progress 9 420
Finished goods 11 350
Revenue 230 020
Purchases of raw materials 84 200
Wages
Factory operatives 33 000
Factory supervisor 26 000
Office and sales staff 45 000
Rates and insurance 14 000
General factory expenses 11 500
Factory equipment – at cost 100 000
Factory equipment – provision for depreciation 36 000
Additional information
2. Rates and insurance are to be apportioned equally between the factory and the office.
4. Factory equipment is depreciated at 20% per annum using the reducing balance method.
REQUIRED
(a) Prepare Pari’s manufacturing account for the year ended 31 December 2021.
Pari
Manufacturing Account for the year ended 31 December 2021
$ $
[9]
(b) Prepare Pari’s income statement (trading section) for the year ended 31 December 2021.
Pari
Income Statement (trading section) for the year ended 31 December 2021
$ $
[4]
(c) Calculate Pari’s gross margin. Your answer should be correct to two decimal places.
Gross margin
working answer
[2]
Pari is disappointed in her cost of production and gross profit. She is considering buying in her
products instead of producing them in her factory.
REQUIRED
(d) Advise Pari whether or not she should start to buy in her products. Justify your answer.
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[Total: 20]
Reducing trade discounts would likely increase Chippo's gross margin as it would lead to higher revenue per sale if customers continue to buy the same quantities. The downside might be a potential decrease in sales volume if customers are deterred by higher effective prices. Therefore, Chippo should balance the impact on sales volume with the gross margin improvement .
Increasing production allows Hilary to have greater control over product quality and potentially higher profit margins since she wouldn't incur markups from buying finished goods. Furthermore, it could enhance production efficiency and better utilize the factory infrastructure. However, the disadvantages include increased operational risk, higher fixed costs associated with production capacity, and potential cash flow constraints as raw materials need to be procured upfront. It may also require additional investment in machinery and labor to meet higher production demands .
The accounting principle of historical cost prevents Sara from recording any value for the efficiency of her factory supervisor. This principle dictates that assets and expenses are recorded based on the actual amount paid rather than their value to the business, meaning intangible factors like an employee's efficiency are not reflected in financial statements .
TC Limited should consider utilizing rent and rates cost drivers such as floor space or employee headcount dedicated to factory and office space to allocate costs effectively. According to provided guidelines, rent and rates should be allocated equally between the factory and the office. This means the total annual rent and rate cost of $19,620 would be divided, resulting in $9,810 being allocated to both the factory and office .
G Limited should calculate the depreciation expense for factory machinery using the reducing balance method at a rate of 15% per annum. The depreciation is computed based on the cost of the machinery ($247,000) minus the accumulated depreciation at the beginning of the year ($51,500). The calculation for the year would therefore include the formula: Depreciation = (Cost - Accumulated Depreciation) * Depreciation Rate = ($247,000 - $51,500) * 0.15 .
Converting office space into factory capacity could increase production output and potentially cut costs related to external production units, improving overall profitability. However, it might reduce administrative efficiency or necessitate moving office functions offsite, which could increase operational costs and limit space for future office expansions .
Hilary's gross profit should be calculated by subtracting the cost of goods sold from the total revenue. This involves totaling direct costs such as raw materials, finished goods purchases, and wages associated with factory operations, and then applying inventory adjustments for raw materials, work in progress, and finished goods to compute the total cost of goods sold. Subtracting this from the total revenue of $457,250 will yield the gross profit .
Converting to a limited company could enhance Chippo's ability to raise capital through equity financing, as investors are typically more inclined to invest in limited companies. It might also offer limited liability protection. However, it could bring increased regulatory requirements and higher costs for compliance and administration compared to operating as a sole trader .
Sara should apportion her rates and insurance expenses equally between the factory and the office. The total amount for rates and insurance is $29,600. Half of this amount, $14,800, should be allocated to the manufacturing account as factory expenses, reflecting the contribution towards factory operations .
Depreciation on low-value office equipment should be applied at management's discretion based on the materiality principle. The advantages of charging depreciation include more precise expense matching with revenues and improved financial accuracy. Disadvantages include administrative burden and potential immaterial impact on financial results due to the low value of assets, possibly leading to unnecessary complexity .