Question

QUESTION 1 20 Marks City Box sole trader manufactures one product that it sells to the local market. The following information is in respect of the year ended November 2017: Manufacturing: At the beginning of the financial year, inventories were as follows: Direct material – 50 000 kg with a value of N$ 200 000 Work-in-progress – value N$ 200 000 Finished goods – 5 000 units During the course of the year, the transactions included the following: ? Purchases of 185 000 kg of material at N$3.50 / kg ? Labour of 92 500 hours at N$12.50 / hour ? 30 000 units were completed, of which 28 300 units were sold at N$ 310 per unit As at 30 November, inventories were as follows: Direct material – 25 200 kg Work-in-progress – value N$82 440 Finished goods – 7 250 units Manufacturing overhead: Applied on direct labour hours at a rate of N$ 5.50 per hour The following information is also available: 1. Actual manufacturing overheads: N$ 520 100 2. Prospect Ltd uses FIFO in costing all its inventories. 3. Actual cost of opening inventory of finished goods: N$ 85 per unit 4. Administrative and marketing costs: N$ 1 225 250 REQUIRED; 1.1 Prepare a statement of costs of goods manufactured and sold for the year ended year ended 30 November 2017. (10) 1.2 Prepare a statement of costs of goods sold for the year ended 30 November 2017. (6) 1.3 Wages paid to a timekeeper in a factory is classified as? (a) Conversion cost or (b) Prime cost, kindly explain your answer.

Answer 1

1)

statement of costs of goods manufactured
Beginning raw material inventory	200000
Raw material purchase [185000*3.5]	647500
less:ending raw material inventory [25200*3.5]	(88200)
Raw material used		759300
Direct labor [92500*12.5]		1156250
Applied overhead [92500*5.5]		508750
Total manufacturing cost		2424300
beginning WIP		200000
Less:ending WIP		(82440)
Cost of goods manufactured		2541860

2)

statement of costs of goods sold
Beginning Finished goods [5000*85]	425000
cost of goods manufactured	2541860
less:ending finished goods inventory	(614283)
cost of goods sold	2352577

**under FIFO units acquired first are sold first so ending inventory are left from last balance

ending finished goods inventory : cost of goods manufactured* ending inventory /units manufactured

                     =2541860*7250/30000

                  = 614283

3)Wages paid to a timekeeper in a factory : It is classified as Indirect labor cost therefor it is a part of conversion cost since prime cost comprise of direct material and direct labor