These balances and totals are from Mark and Brake Ltd who manufactures sport equ

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. (10 marks)
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. (15 marks)
2) Calculate the gross profit of Widget Distributors for the year ended 31 December 20x8. (5 marks)

Explanation / Answer

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

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