Reconciliation of cost and financial accounts
K Limited operates separate cost accounting and financial accounting systems. The following manufacturing and trading statement has been prepared from the financial accounts for the quarter ended 31 March:
|
(£) |
(£) |
|
|
Raw materials: |
||
|
Opening stock |
48 800 |
|
|
Purchases |
108 000 |
|
|
156 800 |
||
|
Closing stock |
52 000 |
|
|
Raw materials consumed |
104 800 |
|
|
Direct wages |
40 200 |
|
|
Production overhead |
60 900 |
|
|
Production cost incurred |
205 900 |
|
|
Work in progress: |
||
|
Opening stock |
64 000 |
|
|
Closing stock |
58 000 |
6 000 |
|
Cost of goods produced |
2 11 900 |
|
|
Sales |
440 000 |
|
|
Finishing goods: |
||
|
Opening stock |
120 000 |
|
|
Cost of goods produced |
211 900 |
|
|
331 900 |
||
|
Closing stock |
121 900 |
|
|
Cost of goods sold |
210 000 |
|
|
Gross profit |
230 000 |
From the cost accounts, the following information has been extracted:
|
Control account balances at 1 January |
(£) |
|
Raw material stores |
49 500 |
|
Work in progress |
60 100 |
|
Finished goods |
115 400 |
|
Transactions for the quarter: |
(£) |
|
Raw material stores |
104 800 |
|
Cost of goods produced |
222 500 |
|
Cost of goods sold |
212 100 |
|
Loss of materials damaged by |
|
|
Flood (insurance claim pending) |
2 400 |
A notional rent of £4000 per month has been charged in the cost accounts. Production overhead was absorbed at the rate of 185% of direct wages.
You are required to:
(a) Prepare the following control accounts in the cost ledger:
Raw materials stores;
Work in process;
Finished goods;
Production overhead;
(b) Prepare a statement reconciling the gross profits as per the cost accounts and the financial accounts;
(c) Comment on the possible accounting treatment(s) of the under-or over-absorption of production overhead, assuming that the financial year of the company is 1 January to 31 December.
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