Compute the value of work in progress

Reference no: EM132747889

Questions -

QUESTION 1 - Mali Yote Limited is a company engaged in the manufacture of specialist marine engines. It operates a job costing accounting system which is not integrated with financial accounts. At the beginning of the month of May 2019, the operating balances in the cost ledger were as follows:

Sh. '000'

Stores ledger control account 85,000

Work in progress control account 167,000

Finished goods control account 49,000

Cost ledger control account 302,000

During the month, the following transactions took place.

Materials: Purchases 42,700

Issues to: Production 63,400

General maintenance 1,400

Assembling of manufacturing equipment 7,600

Factory wages: Total wages paid 124,000

Of the total wages paid. Shs.12,500,000 was incurred in the assembly of manufacturing equipment. Shs.35,700,000 was indirect wages and the balance was direct wages.

Other production overhead costs incurred amounted to Shs.152,000,000. Shs.30,000,000 of which was absorbed by the manufacturing equipment under assembly while Shs.7,500,000 was under absorbed overhead costs written off.

One of the engines manufactured by the company is produced under license. During the month of May 2002. Shs.2,100,000 was paid as royalty for that particular engine.

Selling overheads and distribution overhead costs were as follows:

Sh. '000'

Selling overheads 22,000

Distribution overheads 410,000

The company's gross profit margin is 25% on factory cost.

At the end of May 2002, the stock of work in progress had increased by Shs.12, 000,000. The Manufacturing equipment under assembly was completed within the month and transferred out of the cost ledger at the end of the month.

Required - Prepare,

(i) Cost ledger control account

(ii) Stores ledger control account

(iii) Work in progress control account

(iv) Finished goods control account

(v) Costing profit and loss account

QUESTION 2 - Two Left Feet Ltd manufactures a single product, the Claud. The following figures relate to the Claud for a one-year period,

Activity level 50% 100%

Sales and productions (units) 400 800

Shs Shs

Sales 8,000 16,000

Production costs: Variable 3,200 6,400

Fixed 1,600 1,600

Sales and distribution costs Variable 1,600 3,200

Fixed 2,400 2,400

The normal level of activity for the year is 800 units. Fixed costs are incurred evenly throughout The year, and actual fixed costs are the same as budgeted. There were no stocks of Clauds at the Beginning of the year. In the first quarter, 220 units were produced and 160 units sold.

Required -

(a) Calculate the fixed production costs absorbed by Clauds in the first quarter if absorption costing is used.

(b) Calculate the profit using absorption costing.

(d) A reconciling of profits and Explain why there is a difference between the answers to (c) and (d).

QUESTION 3 - Sasumwa Construction limited has been awarded a contract to build a house. This is a contract No 45 for the company and the contract price is Shs.2.65 million. At the end of the company's financial year, the contract was 85% complete and hence regarded as being near completion. You are also provided with the following information about the contract:

Particulars Shs.

Materials purchased and delivered 580,000

Materials issued from store 60,000

Materials returned to stores 9,000

Site expenses 300,000

Site wages 200,000

Plant sent to site 100,000

Architect's fees 30,000

Plant returned from site 10,000

Subcontractor's fees 105,000

Head Office overheads absorbed 60,000

Valuation at the year ending disclosed the following: Shs

Materials: 19,500

Plant on site 50,000

Work done but not yet certified 60,000

Additional information

a) The portion of the work which was completed during the year and certified by the architect was assessed as representing 75% of the whole contract price. The contractee made payments to this extent less 10% retention money.

b) The management of the company decided for the purpose of preparing the company's annual accounts to make a provision of a third of the notional profit against the possibility of defects and other contingencies arising later in respect of the work already certified for payment.

Required -

1. Prepare the contract account.

2. Compute the amount of profit or loss to be taken to the main profit and loss account of the company.

3. Compute the value of work in progress.

Reference no: EM132747889

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