You are given the following information for the year ended 31 October 2019: Cost item Amount (Sh) Purchase of raw materials 112,000 Returns inwards 8,000 Decrease in stock of raw materials 8,000 Direct wages 42,000 Carriage outwards 4,000 Carriage inwards 3,000 Production overheads 27,000 Increase in work-in-progress 10,000 The value of factory cost of goods completed is Select one: a. Sh 202,000 b. Sh 174,000 c. Sh 183,000 d. Sh 182,000
Question
You are given the following information for the year ended 31 October 2019:
Cost item
Amount (Sh)
Purchase of raw materials
112,000
Returns inwards
8,000
Decrease in stock of raw materials
8,000
Direct wages
42,000
Carriage outwards
4,000
Carriage inwards
3,000
Production overheads
27,000
Increase in work-in-progress
10,000
The value of factory cost of goods completed is Select one:
a. Sh 202,000
b. Sh 174,000
c. Sh 183,000
d. Sh 182,000
Solution
To calculate the factory cost of goods completed, we need to add up all the costs associated with production. This includes the cost of raw materials, direct wages, and production overheads. However, we also need to adjust for any changes in inventory, such as returns inwards, decrease in stock of raw materials, and increase in work-in-progress.
Here's how to calculate it:
- Start with the purchase of raw materials: Sh 112,000
- Subtract returns inwards: Sh 112,000 - Sh 8,000 = Sh 104,000
- Subtract the decrease in stock of raw materials: Sh 104,000 - Sh 8,000 = Sh 96,000
- Add direct wages: Sh 96,000 + Sh 42,000 = Sh 138,000
- Add carriage inwards (since it's a cost associated with bringing the raw materials to the factory): Sh 138,000 + Sh 3,000 = Sh 141,000
- Add production overheads: Sh 141,000 + Sh 27,000 = Sh 168,000
- Add the increase in work-in-progress (since these are goods that were started but not finished, they're still part of the cost of goods completed): Sh 168,000 + Sh 10,000 = Sh 178,000
Note: Carriage outwards is not included in the calculation because it's a cost associated with distribution, not production.
So, the value of factory cost of goods completed is Sh 178,000. However, this option is not listed in the choices. There might be a mistake in the question or the provided choices.
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