Worked example 1
Example adapted from November 2010 NSC Exam Paper You are provided with information (balances, transactions and adjustments) relating to Fatima Manufacturers owned by Fatima Fala. The business manufactures shoes.
Required
Information
Fatima Manufacturers
Raw materials stock | R160 000 |
Work-in-process stock | 158 000 |
Finished goods stock | 120 000 |
Consumable stores stock: Factory | 6 000 |
Factory plant and equipment at cost | 2 225 000 |
Accumulated depreciation on factory plant and equipment | 450 000 |
Purchases of raw materials on credit | R1 023 475 |
Carriage on purchases of raw materials | 22 500 |
Consumable stores purchased for the factory | 43 000 |
Cleaning materials purchased for the office | 12 000 |
Factory plant and equipment purchased on 1 September 2009 | 250 000 |
Production wages | 723 800 |
UIF – contribution for factory employees | |
Salaries: Factory foreman | 150 000 |
Administration | 400 000 |
Sales staff | 250 000 |
Water and electricity | 163 000 |
Sundry expenses: Factory | 194 680 |
Administration | 530 000 |
Sales department | 340 000 |
Raw materials stock | R259 125 |
Work-in-process stock | 122 900 |
Finished goods stock | 142 500 |
Consumable stores stock: factory | 7 000 |
Answers to worked example 1 (see pages 40–41)
Direct Materials Cost | |
Opening balance of raw material stock | R160 000 |
Add: Purchase of raw materials + | R1 023 475 |
Add: Carriage on purchases of raw materials + | R22 500 |
Add: Transport of raw materials (adjustment A) + | R3 750 |
Less: Closing balance of raw material stock – | (R259 125) |
Equals: Raw materials issued to the factory = | R950 600 |
DIRECT LABOUR COST | R |
Production wages (723 800 + 6 200) | 730 000 |
UIF contribution | 7 300 |
737 300 |
FACTORY OVERHEAD COST | R |
Salary of foreman | 150 000 |
Consumable stores: factory (6 000 + 43 000 − 7 000) | 42 000 |
Depreciation (177 500 + 12 500) | 190 000 |
Water and Electricity (163 000 + [4 200 × 60%]) (Total water and electricity already paid during the year + the amount that still has to be paid as per adjustment C) × only the portion used in the factory (60% as per adjustment C). | 100 320 |
Sundry expenses: factory | 194 680 |
677 000 |
TOTAL | |
Direct materials cost | 950 600 This figure comes from the answer you calculated in part 1 of this question. |
Direct labour cost | 737 300 This figure comes from the answer in the direct labour note in part 2 of this question. |
Prime/direct cost | 1 687 900 Direct materials cost + Direct labour cost = Prime costs |
Factory overhead cost | 677 000 This figure comes from the answer in the factory overhead cost note in part 2 of this question. |
Total cost of production | 2 364 900 |
Work-in process at the beginning of the year | 158 000 This figure comes from opening balances at the beginning of the financial year. |
2 522 900 | |
Work-in process at the end of the year | (122 900) This figure comes from closing balances at the end of the financial year. |
Total cost of production of finished goods | 2 400 000 This final figure provides the accountant with the total cost of making the 20 000 pairs of shoes during the year (see additional information E). |
Learn this! Formula to calculate break-even point (BEP):
Total fixed costs
Practice task 1
Opening balance of raw material stock | |
Add: Purchase of raw materials + | |
Add: Carriage on purchases of raw materials + | |
Add: Transport of raw materials + | |
Less: Closing balance of raw material stock – | |
Equals: Raw materials issued to the factory = |
[6]
DIRECT LABOUR COST | R |
[5]
FACTORY OVERHEAD COST | R |
[16]
PRODUCTION COST STATEMENT OF FATIMA MANUFACTURERS FOR THE YEAR ENDED 28 FEBRUARY 2010
TOTAL | |
Primed/direct cost | |
Total cost of production | |
Total cost of production of finished goods |
[12]
Below is a list of suggested past examination questions for extra practice:
Topic | Paper | Question |
Costing calculations and Production Cost Statement | November 2008 | 3 |
Production Cost Statement | November 2009 | 3 |
Costing calculations | February/March 201 | 4 |
Multiple choice | November 2010 | 3.1 |
Costing calculations and concepts | February/March 2012 | 2 |
Production Cost Statement | November 2013 | 2.1 |
Break even point | November 2013 | 2.3 |