Question

Joytoys Manufacturers had a policy of transferring factory production to the sales department at a profit of 10% on total cost of production of finished goods. The following particulars related to the records of the firm for the period 1 January 2000 to 31 December 2000. Balances 1 January 2000 Raw materials Work in progress Finished goods Direct wages due Direct wages prepaid Electricity due Purchases of raw materials for the year Carriage inwards Customs duty Purchases returns Raw materials costing R10 000 sold Direct wages paid Electricity paid Insurance, factory Repairs to equipment (factory) Returns inwards Sales Land and buildings at cost Equipment (factory) at cost Provision for unrealised profit on stock of finished goods Office furniture at cost Motor vehicles at cost Rates (factory) Water (75% factory) Stationery and printing (factory) Factory maintenance Postage and telephone (factory) Accumulated depreciation office furniture equipment motor vehicles Other expenses (sundry) 20 000 30 000 55 000 400 200 800 245 000 3 000 4 000 5 000 18 000 90 000 3 400 1 200 2 740 10 000 792 000 200 000 60 000 5500 14 000 50 000 4 800 4 200 5 100 12 000 1 800 5 600 24 000 15 000 235 240 Further information Balances 31 December: Raw materials Work in process Electricity due Direct wages due Finished goods 30 000 24 000 600 960 Stock of finished goods had not been taken at 31 December 2000, but the business works on a gross profit mark-up percentage of 50% on turnover. This calculation is based on the price at which manufactured goods are delivered to the sales department by the factory. Depreciation to be provided: Factory equipment at 10% per annum on cost. Office furniture at 5% per annum on cost. Motor vehicles at 20% per annum on cost. Required Draw up the production cost statement and income statement of the business for the year ended 31 December 2000. [20]

Answer 1

Estimate Sparrow’s ending inventory and cost of goods sold for the year using the
retail inventory method and the Conventional application
			Cost	Retail
	Beginning Inventory		$     84,000.00	$     1,74,000.00
	Add : Purchases		$ 3,70,000.00	$    5,74,000.00
	Add : Freight in		$       8,400.00
	Deduct : Purchase returns		$     (6,400.00)	$      (10,400.00)
	Add : Net Mark ups			$        15,400.00
	Deduct : Abnormal Spoilage		$     (4,467.00)	$        (7,400.00)
	Goods available for sale		$ 4,51,533.00	$    7,45,600.00
	Cost / Retail (%) = 451533/745600	60.56%
	Deduct : Net mark downs			$      (11,400.00)
	Deduct : Normal Spoilage			$        (2,400.00)
	Deduct : Net sales (534000-9400)			$ (5,24,600.00)
	Deduct : Employee discounts			$        (3,400.00)
	Ending Inventory at Retail (A)			$2,03,800.00
	Ending Inventory at cost = 60.56% * 203800 (B)			$   1,23,421
	Cost of Goods sold (A-B)			$      80,379