Integrated accounts
In the absence of the accountant you have been asked to prepare a month’s cost accounts for a company which operates a batch costing system fully integrated with the financial accounts. The cost clerk has provided you with the following information, which he thinks is relevant:
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£ |
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Balances at beginning of month: |
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Stores ledger control account |
24 175 |
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Work in progress control account |
19 210 |
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Finished goods control account |
34 164 |
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Prepayments of production overheads |
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Brought forward from previous month |
2 100 |
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£ |
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Transactions during the month: |
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Materials purchased |
76 150 |
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Materials issued: to production |
26 350 |
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For factory maintenance |
3 280 |
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Materials transferred between batches |
1 450 |
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Direct workers (£) |
Indirect workers (£) |
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Total wages paid: |
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Net |
17 646 |
3 342 |
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Employees deductions |
4 364 |
890 |
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Direct wages charged to batches from work tickets |
15 236 |
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Recorded non-productive time of direct workers |
5 230 |
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Direct wages incurred on production of capital |
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Equipment, for use in the factory |
2 670 |
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Selling and distribution overheads incurred |
5 240 |
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Other production overheads incurred |
12 200 |
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Sales |
75 400 |
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Cost of finished goods sold |
59 830 |
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Cost of goods completed and transferred into |
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finished goods store during the month |
62 130 |
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Physical stock value of work in progress at end of month |
24 360 |
The production overhead absorption rate is 150% of direct wages, and it is the policy of the company to include a share of production overheads in the cost of capital equipment constructed in the factory.
Required:
(a) Prepare the following accounts for the month:
Stores ledger control account wages control account work in progress control account finished goods control account production overhead control account profit/loss account.
(b) Identify any aspects of the accounts which you consider should be investigated.
(c) Explain why it is necessary to value a company’s stocks at the end of each period and also why, in a manufacturing company, expense items such as factory rent, wages of direct operatives, power costs, etc. are included in the value of work in progress and finished goods stocks.
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