Reference no: EM132524814

Sakala Manufacturing makes a single product. The following balances were extracted from the books at the end of the financial year on 31 December 2019:

K

Inventory at 1 January 2019:

Raw materials                           17 500

Work in progress                       24 000

Finished goods                         50 000

Purchases of raw materials         82 600

Carriage                                12 000

Production wages                    75 000

Office wages                         35 000

Sundry office expenses          14 500

Production manager's salary  20 500

Factory rent, rates and power 18 400

Royalties                              9 000

General factory expenses       15 200

Premises maintenance           40 000

Factory machinery (at cost) 120 000

Factory machinery - provision for depreciation  70 000

Inventory at 31 December 2019:

Raw materials                   16 300

Work in progress              29 000

Finished goods                46 000

Additional information at 31 December 2019:

1. 60% of the carriage relates to raw materials and 40% to goods sold.

2. General factory expenses owing K400.

3. 70% of the maintenance relates to the factory premises and 30% to the office premises.

4. Factory machinery is depreciated at the rate of 15% per annum using the diminishing (reducing) balance method.

Required

Question (a) Prepare the manufacturing account for the year ended 31 December 2019. Clearly label the prime cost and cost of production.

Question (b) Explain the difference between direct cost costs and overheads.