Question

These balances and totals are from Mark and Brake Ltd who manufactures sport equipment:
Inventory: 1 March 20x7
Raw material
14 400
Work-in progress (WIP)
9 500
Finished goods
52 000
Delivery vehicle at cost
19 000
Plant and machinery at cost
120 000
Office furniture at cost
6 000
Bank
11 400
Accumulated depreciation on 1 March 20x7:
Delivery vehicles
3 800
Plant and Machinery
36 000
Office furniture
1 200
Water and electricity:
Factory
6 200
Office
320
Purchase of raw material
144 000
Customs duty on raw material
3 400
Freight in on raw material
7 200
Insurance paid :
Factory
2 520
Office
840
Insurance paid in advance 1 March 20x7
Factory
960
Office
260
Allowance for bad debts on 1 March 20x7
830
Account receivable
16 600
Factory wages
73 000
Indirect labour
9 600
Salaries:
Sale personnel
17 40
Office personnel
11 600
Factory overheads
4 560
Stationary
760
Sales
260 400
Page 19 of 21
Additional information:
1. Inventory on hand 28 February 20x8:
 Raw material R13 400
 Work – in- progress R10 700
 Finished goods R60 000
2. Depreciation should be provided for on the reducing-balance method:
 Delivery vehicle 20% p.a.
 Plant and machinery 15%p.a.
 Office furniture 5%p.a
3. Insurance is payable one year in advance on 1 July.
4. Finished goods are transferred from the factory to the sales department at production cost plus 25%
You are required to:
Prepare a work – in – progress inventory account for the year ended 28 February 20x8.
PART 2 (20 marks: 36 minutes)
Mr Len Naidoo, the owner of Widget Distributors, has in the past imported widgets. However, from 1 January 20x8, he decided to manufacture the widgets himself.
Here is the abridged statement of financial position of Widget Distributors at 31 December 20x7:
Capital – Len Naidoo
2 000
Inventory (1 000 units)
800
Accounts payable
1 000
Accounts receivable
700
Bank
1 500
3 000
3 000
Page 20 of 21
From a scrutiny of vouchers and other documents you find that these transaction have taken place during the year ended 31 December 20x8:
1. Cash transaction as per the cash book:
Receipts:
Capital introduced by Mr Naidoo R10 000
Accounts receivable R6 000
Cash sales R2 000
Payments:
Accounts payable R7 000
Drawings- Mr Naidoo R2 500
Wages paid to manufacturing staff R3 000
Rent for factory R1 200
Hire of specialised machinery R1 300
2. Amount owing, totalling R3 500 were written off as bad debts.
3. 5 500 units were sold.
4. A royalty of 10 cents per completed unit manufactured during the year is payable in arears on 1 January of the following year.
5. In addition, the following balance at 31 December 20x8 were determined:
 Accounts payable – raw material R3 500
 Accounts receivable – trade debtors R1 200
 Inventory: Finished goods (4 500 units) R?
 Work – in – progress (2 000 units) R?
 Raw material R2 500
6. Inventory is valued at factory cost using the first – in first – out basis.
7. Work – in – progress at 31 December 20x8 was 75% complete in respect of raw material, and 45% complete in respect of direct labour and overheads.
You are required to:
1) Prepare the statement of the cost of goods manufactured for Widget distributors for the year ended 31 December 20x8.
2) Calculate the gross profit of Widget Distributors for the year ended 31 December 20x8.

Answer 1

	WORK-IN -PROCESS INVENTORY
		Debit	Credit
	Beginning Work in process	9500
	Raw material inventory	155600				Direct material expenses
	Factory wages	73000			A	Beginning inventory	14400
	Manufacturing overhead	36093			B	Purchase during the year	154600	(144000+3400+7200)
	Finished goods Inventory		263493		C=A+B	Total available	169000
	Ending Balance	10700			D	Ending inventory	13400
					E=C-D	Raw materials used	155600
						Manufacturing overhead expenses
						Depreciation -plant & machinery	12600	(0.15*(120000-36000)
						Water and electricity-Factory	6200
						Insurance expense-Factory	2520
						Indirect labor	9600
						Salaries-Factory overheads	4560
						Advance insurance (920*(8/12)	613
						Total manufacturing overhead expense	36093
						Transfer of work in process to Finished Goods
					F	Beginning work in process	9500
					G	Work in process added	264693	(155600+73000+36093)
					H	Ending work in process	10700
					I=F+G-H	Work in process transferred	263493