QUESTION ONE Sakala Manufacturing makes a single product. The following balances were extracted from the books at the end of the financial year on 31 December 2019:

K Inventory at 1 January 2019:Raw materials17 500 Work in progress24 000 Finished goods50 000 Purchases of raw materials 82 600 Carriage 12 000 Production wages 75 000 Office wages 35 000 Sundry office expenses 14 500 Production manager's salary 20 500 Factory rent, rates and power 18 400 Royalties 9 000 General factory expenses 15 200 Premises maintenance 40 000 Factory machinery (at cost) 120 000 Factory machinery - provision for depreciation 70 000 Inventory at 31 December 2019:Raw materials 16 300 Work in progress 29 000 Finished goods 46 000

Additional information at 31 December 2019: 1. 60% of the carriage relates to raw materials and 40% to goods sold. 2. General factory expenses owing K400. 3. 70% of the maintenance relates to the factory premises and 30% to the office premises.

3

4. Factory machinery is depreciated at the rate of 15% per annum using the diminishing (reducing) balance method.

Required(a) Prepare the manufacturing account for the year ended 31 December 2019. Clearly label the prime cost and cost of production.[16 Marks] (b) Explain the difference between direct cost costs and overheads.