Intermediate: Interlocking cost accounts and rec

A notional rent of £4000 per month has been charged In the cost accounts. Production overhead was absorbed at the rate of 1 B5%
of direct wages.
You are required to:
{a) Prepare the following control accounts in the cost ledger:
raw materials stores;
work In process:
finished goods;
production overhead;

(b) prepare a statement reconciling the gross profits as per the cost accounts and the financial accounts; (11 marks)

(c) comment on the possible accounting treatment(s) of the under or over absorption of produc1ion overhead, assuming that the financial year of the company is 1 January to 31 December.

Transcribed Image Text:

Raw materials: Opening stock Purchases () () 48 800 108 000 156 800 Closing stock 52000 Raw materials consumed 104 800 Direct wages Production overhead 40200 60900 Production cost incurred Work in progress: Opening stock 205 900 64 000 Closing stock 58 000 6000 Cost of goods produced carried down 211900 Sales 440 000 Finishing goods: Opening stock 120000 Cost of goods produced brought down 211900 331900 Closing stock 121900 Cost of goods sold 210000 Gross profit 230000 From the cost accounts, the following information has been extracted: