Preparation of cost accounts from reconci- liation statement

(a) The cost accountant and the financial accoun- tant of C Limited had each completed their final accounts for the year. Shown below are the manufacturing, trading and profit and loss accounts, together with a statement reconcil- ing the cost and financial profits. You are required to show the following accounts in the cost ledger: (i) raw materials; (ii) work in progress; (iii) finished goods; (iv) profit and loss.

Production overhead is absorbed at a rate of 662% of wages.
Administration overhead is written off in the period in which it incurred.

(b) Discuss briefly the reasons for including in a cost accounting system notional interest on capital locked up in stock and its treatment in preparing a reconciliation of cost and financial profits.

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Manufacturing, Trading and Profit and Loss Account for the year ended 31 December (000) (000) Raw material Opening stock 110 Purchases 640 750 Less: Returns 20 730 Closing stock 130 600 (000) (000) Trading account, cost of goods manufactured 1000