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Chapter 4

Q. 4.1

During the year to 31 December 2014, Lars Anderson incurs the following costs in his
factory, which produces cakes for sale to hotels and restaurants:

 

                                                                                                                                                                                                                                                                                                                                          £
Ingredients 102,952
Wages to factory workers 74,120
Wages owed to factory workers 6,300
Factory rent and rates 12,500
Factory light and heat 8,543
Wages to supervisors 26,100
Depreciation of factory machinery 3,910
Inventory of raw materials on 1 January 2014 12,400
Inventory of raw materials on 31 December 2014 11,500
Partly completed inventory (work in progress) on
1 January 2014
1,540
Partly completed inventory (work in progress) on
31 December 2014
640

Calculate the cost of manufacturing (for inclusion as part of the ‘cost of sales’ in the
income statement) for the year ended 31 December 2014.

Step-by-Step

Verified Solution

Lars Anderson
Cost of manufacturing for the year ended 31 December 2014

 

                                                                                                                                      £                                                  £
Raw materials
Opening inventory at 1 January 2014 12,400
Add Purchases of raw materials \frac{102,952}{115,352}
Less Closing inventory at 31 December 2014 \frac{(11,500)}{}
Cost of raw materials 103,852
Other direct costs:
Production labour (74,120 + 6,300) \frac{80,420}{184,272}
Prime cost of production
Indirect factory costs:
Rent and rates 12,500
Light and heat 8,543
Wages to supervisors 26,100
Depreciation of factory machinery \frac{3,910}{}
\frac{51,053}{235,325}
Add Opening work in progress 1,540
Less Closing work in progress \frac{(640)}{}
900
Cost of manufacturing \frac{}{\frac{236,225}{} }