Question one

You have been asked to prepare a months cost accounts for Rayman Company which operates a batch

costing system fully integrated with financial accounts. The cost clerk has provided you with the

following information, which he thinks is relevant.

Balances at the beginning of month:

KES

Stores ledger control a/c

24,175,000

Work in progress control a/c

19,210,000

Finished goods control a/c

34,164,000

Prepayments of production overheads brought forward

from the previous month

2,100,000

Transactions during the month:

KES

Materials purchased

76,150,000

Materials issued: to production

26,350,000

:for factory maintenance

3,280,000

Materials transferred between batches

1,450,000 2

Total wages paid:

Direct workers (KES)

Indirect workers (KES)

Net

17,646,000

3,342,000

Employees deductions

4,364,000

890,000

Direct wages charged to batches from work tickets

15,236,000

Recorded non-productive time of direct workers

5,230,000

Direct wages incurred on production of capital

equipment, for use in the factory

2,670,000

Other information;

KES

Selling and distribution overheads incurred

5,240,000

Other production overheads incurred

12,200,000

Sales

75,400,000

Cost of finished goods sold

59,830,000

Cost of goods completed and transferred into finished goods store during the month 62,130,000

Physical stock value of work in progress at the end of the month

24,360,000

The production overhead absorption rate is 150% of direct wages and it is the policy of the company to

include a share of production overheads in the cost of capital equipment constructed in the factory.

Required:

a) Prepare the following accounts for the month;

(i)

Stores ledger control account (7 marks).

(ii)

Wages control account (11 marks).

(iii)

Work in progress control account (9 marks).

(iv)

Finished goods control account (6 marks).

(v)

Production overheads control account (10 marks).

(vi)

Profit/loss account (7 marks).

b) Identify any aspects of the accounts which you consider should be investigated (6 marks).

c) Explain why it is necessary to value a companys stocks at the end of each period (2 marks).

d) Explain why, in a manufacturing company, expense items such as factory rent, wages of direct

operatives, power costs, e.t.c. are included in the value of work in progress and finished goods

stocks. (2 marks).

Total = 60 marks