Intermediate: Interlocking accounts AZ Limited has separate cost and financial accounting systems interlocked by control accounts in the two ledgers. From the cost accounts, the following information was available for the period:

In the cost accounts, additional depreciation of £12 500 per period is charged and production overheads are absorbed at 250% of wages.
The various account balances at the beginning of the period were:

Required:

(a) Prepare the following control accounts in the cost ledger, showing clearly the double entries between the accounts, and the closing balances:
. Stores control Work in progress control Finished goods control Production overhead control (10 marks)

(b) Explain the meaning of the balance on the production overhead control account.
(2 marks)

(c) When separate ledgers are maintained, the differing treatment of certain items may cause variations to arise between costing and financial profits. Examples of such items include stock valuations, notional expenses, and non-costing items charged in the financial accounts. Briefly explain the above three examples and state why they may give rise to profit differences.

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Cost of finished goods produced Cost of goods sold Direct materials issued Direct wages Production overheads (as per the financial accounts) Direct material purchases () 512050 493 460 197 750 85 480 208 220 216590