Intermediate: Interlocking cost accounts and reconciliation statement K Limited operates separate cost accounting and financial accounting systems. The following manu¬ facturing and trading statement has been prepared from the financial accounts for the quarter ended 31 March:

A notional rent of £4000 per month has been charged in the cost accounts. Production overhead was absorbed at the rate of 185% 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; (10 marks)

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

(c) comment on the possible accounting treat¬
ments) of the under or over absorption of production overhead, assuming that the finan¬ cial year of the company is 1 January to 31 December.

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() () Raw materials: Opening stock 48 800 Purchases 108 000 156 800 Closing stock 52000 Raw materials consumed 104 800 Direct wages 40 200 Production overhead Production cost incurred 60 900 205 900 Work in progress: Opening stock 64000 Closing stock 58 000 6.000