Unit 4 Manufacturing accounts

Question 1

how do you work out prime cost?

Answer 1

direct materials + direct labour + direct expenses

Question 2

what inventory is included in working out the prime cost

Answer 2

raw materials

Question 3

what does direct labour not include

Answer 3

factory supervisors

Question 4

what is normally included as a direct expense

Answer 4

royalty

Question 5

what are common examples of factory overheads

Answer 5

wages of supervisors, factory rent, depreciation of machinery, heating and lighting, canteen expenses

Question 6

what cost is calculated at the bottom of a manufacturing account

Answer 6

production cost

Question 7

where is the production cost included

Answer 7

inbetween opening and closing inventory of finished goods on the income statement

Question 8

when there is a transfer price, what comes before sales revenue on a income statement

Answer 8

production cost
+ factory profit
production cost at transfer price

Question 9

how do you work our factory profit

Answer 9

transfer price of production cost

Question 10

how do you work out production cost at transfer price

Answer 10

production cost + factory profit

Question 11

why is it necessary to adjust for unrealised profit in the financial statements? ( 4 reasons)

Answer 11

the prudence concept states that you should not anticipate profit until it has been fully realised so that profit is not overstated

unrealised profit may not be fully achieved

IAS2 states that inventory must be valued at the lower of cost and net realisable value

it helps ensure that the financial statements provide a true and fair view and that the profits are not over stated.