Question

CL plc is a manufacturing business. Goods are transferred from the factory at a fixed percentage profit, which has remained unchanged for some years. The directors provided the following information for the year ended 31 December 2017 Revenue Prime cost Factory overheads Distribution costs Administrative expenses Finance charges Work in progress at 1 January 2017 Inventory of finished goods at transfer price at 1 January 2017 Work in progress at 31 December 2017 Inventory of finished goods at transfer price at 31 December 2017 1820 000 780 000 152 000 283 800 343 100 47 100 17 000 126 000 25000 96 000 The following information is also available: 1 The provision for unrealised profit account was as follows: CL plc Provision for unrealised profit account 2017 Dec 31 Income statement Balance cld 2017 Jan 1 Balance b/d 5000 16000 21000 21000 21000 2018 Jan 1 Balance b/d 16000 2 Total rent for the business was $100 000 for the year. All of this had been included in administrative expenses. However, 50% of it related to the factory, 25% to the offices and 25% to the distribution centres. 3 The taxation charge for the year was $39400. Answer the following questions in the Question Paper. Questions are printed here for reference only. (a) Calculate the percentage of factory profit used by the company, (b) Prepare the manufacturing account for the year ended 31 December 2017 in as much detail as possible. (c) Prepare the income statement for the year ended 31 December 2017.

Answer 1

(1) Factory profit :

Revenue 1820000

Closing inventory

Work-in-progress 25000

Finished goods 96000

Total 1941000

Less:

Opening inventory   

Work-in-progress 17000

Finished goods 126000

Prime cost 78000

Factory overhead 152000

Rent of factory 50000

Factory profit 816000

(2) Manufacturing account for the year ended 31 Dec 2017

Prime cost 780000

Factory overheads 202000

(including rent 50%)

Add:opening work in progress 17000

Less:closing work in progress 25000

Works cost 974000

Add: Administration overhead 268100

Cost of production 1242100

Add: opening finished goods 126000

Less: closing finished goods 96000

Cost of goods sold 1272100

Add:Selling and distribution overhead 308800

Cost of sales 1580900

Profit 239100

Sales 1820000

(3) Income statement for the year ended 31 December 2017

Revenue 1820000

Add:closing stock on work in progress 25000

Closing stock of finished goods 96000

Total revenue 1941000

Less: Prime cost 780000

Factory overhead 152000

Opening work in progress 17000

Opening finished goods 126000

Rent of factory 50000

Gross profit 816000

Expenses:

Distribution expenses 308800

Administration expenses 268100

Finance charges 47100
Income:

Gross profit 816000

Unrealized profit 16000

Net profit (income- expenses)    208000

Less: tax expenses 39400

Profit after tax 168600