K Limited operates separate cost accounting and financial accounting systems. The following manufacturing and trading statement has been prepared from the financial accounts for the quarter ended 31 March:

A notional rent of £4,000 per month has been charged in the accounts. Production overhead was absorbed at the rate of 185 per cent of direct wages.

You are required to:

(a) Prepare the following control accounts in the cost ledger:

raw materials stores work-in-progress finished goods production overhead

(b) Prepare a statement reconciling the gross profit as per the cost accounts and the financial accounts.

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

Transcribed Image Text:

Raw materials: Opening stock 48,000 Purchases Closing stock 108,800 156,800 52,000