in the absence of the accountant you have been asked to prepare a month rsquo s cost 610021

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:

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.