Intermediate: Preparation of cost accounts from reconciliation statement

(a) The cost accountant and the financial accoun¬ tant of C Limited had each completed then- 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 66|% 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 000 000 000 000 Raw material Opening stock Trading account, 110 cost of goods Purchases 640 manufactured 1000 750 Less: Returns 20 730 Closing stock 130 600 Direct wages Paid Accrued Prime cost Production expenses Work in progress: Opening stock Closing stock 220 20 240 840 162 (2) 1000 1000 Sales 1530 Less: Returns 30 1500 Finished goods: Opening stock 82 Manufactured 1000 1082 Closing stock 72 1010 Gross profit 490 1500 Administration expenses 200 Sales expenses Discount allowed Debenture interest Net profit 20 10 200 500 [Reconciliation Statement] Gross Profit 70 Discount received 1500 490 10. 500