Manufacturing account

Manufacturing: not retailing

- A manufac-turing account is prepared in addition to the trading and profit and loss
accounts.
- It is pro-duced for internal use only. People other than the owners and managers of the
organisation rarely see a manufacturing account.

-If a business is using manufacturing accounts, instead of a figure for purchases (of
finished goods) the trading account will contain the cost of manufacturing the goods that
were manufac-tured during the period.
-The manufacturing account is used to calculate and show the cost of manufacturing those
goods.
-The figure it produces that is used in the trading account is known as the production
cost.

Divisions of costs
-In a manufacturing business the costs are divided into different types. These may be
summarised in chart form as follows:
Direct
materials 5 5 5
Prime
Direct labour 6 cost 4 4
Direct Production
expenses 7 6 cost 4
Plus 4 4
Total
Indirect manufacturing costs 7 6 cost
Plus 4
Administration expenses 4
Selling and distribution
expenses 4
Financial
charges 7

prime cost items and the production cost items are shown in the manufacturing account .
-The administration expenses, selling and distribution expenses and the financial charges appear in the
profit and loss account.

37.3
 Direct and indirect costs
- when you see the word direct followed by a type of cost, you know that it has been possible to
trace the costs to an item being manufactured.
-The sum of all the direct costs is known as the prime cost.
- If a cost cannot easily be traced to the item being manufactured, then it is an indirect cost and
will be included under indirect manufacturing costs (which are also sometimes known as
‘factory overhead expenses’).
-‘Production cost’ is the sum of prime cost plus the indirect manufacturing costs.

Indirect manufacturing costs

‘Indirect manufacturing costs’ are all those costs which occur in the factory or other place where
production is being done, but which cannot easily be traced to the items being manufactured.
Examples are:
-wages of cleaners
-wages of crane drivers
-rent of a factory
-depreciation of plant and machinery
-costs of operating forklift trucks
-factory power
-factory lighting

37.5 Administration expenses

‘Administration expenses’ consist of such items as:

- managers’ salaries,
-legal and accountancy charges,
-the depreciation of accounting machinery and
- secretarial salaries.

37.6 Selling and distribution expenses

‘Selling and distribution expenses’ are items such as:

- sales staff’s salaries and commission,
- car-riage outwards,
-depreciation of delivery vans,
-advertising and
-display expenses.
37.7

Financial charges

‘Financial charges’ are expense items such as:

- bank charges and
-discounts allowed.

Activity Place a tick in the appropriate column for each of the following cost
37.2 items:
Dire Administra Selling Finan
Direct ct Direct Indirect tion and cial
materi labo expen manufactur distributi charg
als ur ses ing expenses on es
expense
costs s

Purchases of raw
(a) materials
(b) Direct wages
General factory
(c) expenses
Depreciation of
(d) machinery
(e) Commission on sales
(f ) Factory rent
Carriage inwards of
(g) raw
materials
(h) Royalties
Stock of raw
(i) materials
Administration
( j) salaries
(k) Indirect labour
(l) Bank charges
(m) Carriage outwards
(n) Discounts allowed
(o) Factory lighting

37.8
 Format of financial statements

Manufacturing account part

This is debited with the production cost of goods completed during the accounting period. It
contains costs of:
Direct materials
Direct labour
Direct expenses
Indirect manufacturing costs

The manufacturing account includes all purchases of raw materials, including the stock adjustments for raw
materials. It also includes stock adjustments for work in progress (goods that are part-completed at the
end of a period). Let’s put this into a series of steps:
Add opening stock of raw materials to purchases and subtract the closing stock of raw materials.

Add in all the direct costs to get the prime cost.

Add in all the indirect manufacturing costs.

Add the opening stock of work in progress and subtract the closing stock of work in progress
to get the production cost of all goods completed in the period.

Profit and loss account part

This is prepared in the way you learnt in earlier chapters in this book. You know, therefore, that
it includes:
Gross profit brought down from the trading account
All administration expenses
All selling and distribution expenses
All financial charges

when completed, the manufacturing account shows the total of production cost that relates to
those manufactured goods that have been available for sale during the period. This figure will
then be transferred down to the profit and loss account where it will replace the entry for
purchases.

Trading account part

This account includes:
-Production cost brought down from the manufacturing account
-Opening and closing stocks of finished goods
Sales
 When completed this account will disclose the gross profit.
This will then be carried down to the profit and loss account part.
The manufacturing account and the trading account can be shown in the form of a diagram:

Manufacturing Account

Production costs for the period: £

xx
Direct materials x
xx
Direct labour x
xx
Direct expenses x
xx
Prime cost x
xx
Indirect manufacturing costs x
xx
Production cost of goods completed c/d to trading account x

Trading Account

£ £
xx
Sales x
Less Production cost of goods sold:
xx
Opening stock of finished goods (A) x
xx
Add Production costs of goods completed b/d x
xx
x
Less Closing stock of finished goods (B) ( xxx)
Gross profit (xxx)
xx
x

is production costs of goods unsold in previous period.

is production costs of goods unsold at end of the current period.

However, some of the items you would normally put in the profit and loss account part are already
included in the manufacturing account, e.g. depreciation on machines, and canteen wages. When
completed, this account will show the net profit.

Activity
37.3
A worked example of a manufacturing account

Exhibit 1 shows the necessary details for a manufacturing account. It has been assumed
that there were no partly completed units (work in progress) either at the beginning or end of the
period.

Exhibit 1

Details of production costs for the year ended 31 December 20X7:

£
1 January 20X7, stock of raw materials 5,000
31 December 20X7, stock of raw materials 7,000
Raw materials purchased 80,000
210,00
Manufacturing (direct) wages 0
Royalties 1,500
Indirect wages 90,000
Rent of factory – excluding administration and selling and distribution
blocks 4,400
Depreciation of plant and machinery in factory 4,000
General indirect expenses 3,100

Manufacturing Account for the year ended 31 December

20X7

£ £
Stock of raw materials 1.1.20X7 5,000
Add Purchases 80,000
85,000
Less Stock of raw materials 31.12.20X7 ( 7,000)
Cost of raw materials consumed 78,000
210,00
Manufacturing wages 0
Royalties 1,500
289,50
Prime cost 0
Indirect manufacturing costs
Rent 4,400
90,00
Indirect wages 0
General expenses 3,100
Depreciation of plant and machinery 4,000
101,50
Production cost of goods completed c/d 0
391,00
0
37.10
Work in progress
The production cost to be carried down to the trading account is that of production cost of goods
completed during the period. If items have not been completed, they cannot be sold. Therefore,
they should not appear in the trading account.
For instance, if we have the following information, we can calculate the transfer to the trading
account:
£
Total production costs expended during the year 50,000
Production costs last year on goods not completed last year, but completed
in
this year (work in progress) 3,000
Production costs this year on goods which were not completed by the year
end
(work in progress) 4,400
The calculation is:
Total production costs expended this year 50,000
Add Costs from last year, in respect of goods completed in this year
(work in progress) 3,000
53,000
Less Costs in this year, for goods to be completed next year (work in
progress) ( 4,400)
48,60
Production costs expended on goods completed this year 0

37.11 Another worked example

Exhibit 2

£
1 January 20X7, Stock of raw materials 8,000
31 December 20X7, Stock of raw materials 10,500
1 January 20X7, Work in progress 3,500
31 December 20X7, Work in progress 4,200
Year to 31 December 20X7:
Wages: Direct 39,600
Indirect 25,500
Purchase of raw materials 87,000
Fuel and power 9,900
Direct expenses 1,400
Lubricants 3,000
Carriage inwards on raw materials 2,000
Rent of factory 7,200
Depreciation of factory plant and machinery 4,200
Internal transport expenses 1,800
Insurance of factory buildings and plant 1,500
General factory expenses 3,300
 Manufacturing Account for the year ended 31 December 20X7
$
Stock of raw materials 1.1.20X7 8,000
Add Purchases 87,000
Carriage inwards 2,000
97,000
Less Stock of raw materials 31.12.20X7 ( 10,500)
86,50
Cost of raw materials consumed 0
Direct wages 39,600
Direct expenses 1,400
Prime cost 127,500
Indirect manufacturing costs:
Fuel and power 9,900
Indirect wages 25,500
Lubricants 3,000
Rent 7,200
Depreciation of plant 4,200
Internal transport expenses 1,800
Insurance 1,500
3,30
General factory expenses 0
56,400
183,900
Add Work in progress 1.1.20X7 3,500
187,400
Less Work in progress 31.12.20X7 ( 4,200)
Production cost of goods completed c/d 183,200

The trading account is concerned with finished goods. If in the foregoing exhibit there had been
£3,500 stock of finished goods at 1 January 20X7 and £4,400 at 31 December 20X7, and the sales
of finished goods amounted to £250,000 then the trading account would appear:

Trading Account for the year ended 31 December 20X7

£ £
Sales 250,000
Less Cost of goods sold:
Stock of finished goods 1.1.20X7 3,500
Add Production cost of goods completed b/d 183,200
186,700
Less Stock of finished goods 31.12.20X7 ( 4,400)
182,300
Gross profit c/d 67,700

The profit and loss account is then constructed in the normal way.

37.12
 Apportionment of expenses

Quite often expenses will have to be split between

l Indirect manufacturing costs: to be charged in the manufacturing account part
l Administration expenses: 5
l Selling and distribution expenses: 6 to be charged in the profit and loss account part
l Financial charges: 7

-An instance of this could be the rent expense.

- If the rent is paid separately for each part of the organisation, then it is easy to charge the rent
to each sort of expense.
- However, only one figure of rent may be paid, without any indication as to how much is for
the factory part, how much is for the selling and distribution part and how much is for the
administration buildings.
-How the rent expense will be apportioned in the latter case will depend on circumstances,
using the most equitable way of doing it.
A range of methods may be used, including ones based upon:
1)floor area
2)property valuations of each part of the buildings and land.

Full set of financial statements

A complete worked example is now given. Note that in the profit and loss account the expenses have
been separated so as to show whether they are administration expenses, selling and distribution expenses, or
financial charges.

The trial balance in Exhibit.3 has been extracted from the books of J Jarvis, Toy Manufacturer, as at 31
December 20X7.
 Exhibit 3

J Jarvis
Trial Balance as at 31 December
20X7
Dr Cr

£ £
Stock of raw materials 1.1.20X7 21,000
Stock of finished goods 1.1.20X7 38,900
Work in progress 1.1.20X7 13,500
Wages (direct £180,000; factory indirect £145,000) 325,000
Royalties 7,000
Carriage inwards (on raw materials) 3,500
Purchases of raw materials 370,000
Productive machinery (cost £280,000) 230,000
Administration computers (cost £20,000) 12,000
General factory expenses 31,000
Lighting 7,500
Factory power 13,700
Administration salaries 44,000
Sales reps’ salaries 30,000
Commission on sales 11,500
Rent 12,000
Insurance 4,200
General administration expenses 13,400
Bank charges 2,300
Discounts allowed 4,800
Carriage outwards 5,900
1,000,00
Sales 0
Debtors and creditors 142,300 64,000
Bank 16,800
Cash 1,500
Drawings 60,000
Capital as at 1.1.20X7 357,800
1,421,80 1,421,80
0 0

Notes at 31.12.20X7:
Stock of raw materials £24,000; stock of finished goods £40,000; work in progress
£15,000.
Lighting, rent and insurance are to be apportioned: factory 5/6, administration 1/6.
Depreciation on productive and administration computers at 10 per cent per annum on
cost.
Manufacturing, Trading and Profit and Loss Account for the year ending 31 December 20X7

£ £ £
Stock of raw materials 1.1.20X7 21,000
370,00
Add Purchases 0
==Carriage inwards 3,500
394,50
0
24,000
Less Stock raw materials 31.12.20X7 ( )
370,50
Cost of raw materials consumed 0
180,00
Direct labour 0
Royalties 7,000
557,50
Prime cost 0
Indirect manufacturing costs:
General factory expenses 31,000
Lighting 5/6 6,250
Power 13,700
Rent 5/6 10,000
Insurance 5/6 3,500
Depreciation of productive machinery 28,000
Indirect labour 145,000
237,450
794,950
Add Work in progress 1.1.20X7 13,500
808,45
0
Less Work in progress 31.12.20X7 ( 15,000)
793,45
Production cost of goods completed c/d 0
Sales 1,000,000
Less Cost of goods sold:
Stock of finished goods 1.1.20X7 38,900
Add Production cost of goods completed 793,450
832,35
0
Less Stock of finished goods 31.12.20X7 ( 40,000)
(792,350)
207,65
Gross profit 0
expenses
Administration salaries 44,000
Rent 1/6 2,000
Insurance 1/6 700
Lighting 1/6 1,250
Depreciation of administration computers 2,000

Sales reps’ salaries 30,000

Commission on sales 11,500
Carriage outwards 5,900

Bank charges 2,300

Discounts allowed 4,800
 ‘
(117,850)
89,80
Net profit 0

‘
J Jarvis
Balance Sheet as at 31 December
20X7

Fixed assets £ £
Productive machinery at cost 280,000
Less Depreciation to date ( 78,000)
202,000
Administration computers at cost 20,000
Less Depreciation to date ( 10,000)
10,000
212,000
Current assets
Stock
Raw materials 24,000
Finished goods 40,000
Work in progress 15,000
Debtors 142,300
Bank 16,800
Cash 1,500
239,600
Less Current liabilities
Creditors ( 64,000)
175,60
Net current assets 0
387,600
Financed by
Capital
Balance as at 1.1.20X7 357,800
Add Net profit 89,800
447,600
Less Drawings ( 60,000)
387,600
 Review questions

1 A business both buys loose tools and also makes some itself. The following data is
available concerning the years ended 31 December 20X7, 20X8 and 20X9.
20X7 £
Jan 1 Stock of loose tools 2,400
During the year:
Bought loose tools from suppliers 3,800
Made own loose tools: the cost of wages of employees being
£490 and the materials cost £340
Dec 31 Loose tools valued at 5,100
20X8
During the year:
Loose tools bought from suppliers 1,820
Made own loose tools: the cost of wages of employees being £610
and the materials cost £420
Dec 31 Loose tools valued at 5,940
20X9
During the year:
Loose tools bought from suppliers 2,760
Made own loose tools: the cost of wages of employees being £230
and the materials cost £370. Received refund from a supplier for
faulty tools returned to him 142
Dec 31 Loose tools valued at 5,990
You are to draw up the Loose Tools Account for the three years, showing the amount
transferred
as an expense in each year to the Manufacturing Account.

2 Using whichever of the following figures are required, prepare a manufacturing and trad-
ing account for 20X3. The manufacturing account should show clearly the prime cost of
manufac-
ture and the production cost of finished goods produced. ‘

Stocks, 1 January 20X3:

Raw materials 13,500
Partly finished goods 11,800
Finished goods 13,400
Stocks, 31 December 20X3:
Raw materials 14,100
Partly finished goods 11,450
Finished foods 14,160
Purchases of raw materials 82,700
Carriage on raw materials 4,430
Salaries and wages: factory (including £22,700 for management and
supervision) 75,674
Salaries and wages: general office 14,200
Rent and business rates (three-quarters works, one-quarter office) 1,600
Lighting and heating (seven-eighths works, one-eighth office) 2,960
Repairs to machinery 1,527
Depreciation of machinery 2,700
Factory direct expenses 365
Insurance of plant and machinery 440
Sales 202,283
Note: partly finished goods are valued at their production cost.
‘
£
3A From the following information, prepare the manufacturing, trading and profit and loss
account for the year ending 31 December 20X6 and the balance sheet as at 31
December 20X6 for the firm of J Jones Limited.
£ £
258,00
Purchase of raw materials 0
Fuel and light 21,000
Administration salaries 17,000
Factory wages 59,000
Carriage outwards 4,000
Rent and business rates 21,000
482,00
Sales 0
Returns inward 7,000
General office expenses 9,000
Repairs to plant and machinery 9,000
Stock at 1 January 20X6:
Raw materials 21,000
Work in progress 14,000
Finished goods 23,000
Sundry creditors 37,000
457,00
Capital account 0
410,00
Freehold premises 0
Plant and machinery 80,000
Debtors 20,000
Accumulated provision for depreciation on plant and machinery 8,000
Cost in hand 11,000
984,00 984,00
0 0

Make provision for the following:

(i) Stock in hand at 31 December 20X6:
Raw materials £25,000
Work in progress £11,000
Finished goods £26,000.

ii) Depreciation of 10% on plant and machinery using the straight line method.
(iii) 80% of fuel and light and 75% of rent and rates to be charged to manufacturing.
(iv) Doubtful debts provision: 5% of sundry debtors.
(v) £4,000 outstanding for fuel and light.
(vi) Rent and business rates paid in advance: £5,000.
(vii) Market value of finished goods: £382,000
4 On 1 April 20X6 a business purchased a machine costing £112,000. The machine can be used for
a total of 20,000 hours over an estimated life of 48 months. At the end of that time the machine is
expected to have a trade-in value of £12,000.
The financial year of the business ends on 31 December each year. It is expected that
the machine will be used for:
4,000 hours during the financial year ending 31 December 20X6
5,000 hours during the financial year ending 31 December 20X7
5,000 hours during the financial year ending 31 December 20X8
5,000 hours during the financial year ending 31 December 20X9
1,000 hours during the financial year ending 31 December 20Y0
Require
d:
Calculate the annual depreciation charges on the machine on each of the following
(a) bases for
each of the financial years ending on 31 December 20X6, 20X7, 20X8, 20X9 and
20Y0:
(i) the straight line method applied on a month for month basis,
the diminishing balance method at 40% per annum applied on a full year basis,
(ii) and
(iii) the units of output method.
Suppose that during the financial year ended 31 December 20X7 the machine was
(b) used for
only 1,500 hours before being sold for £80,000 on 30 June.
Assuming that the business has chosen to apply the straight line method on a
month for
month basis, show the following accounts for 20X7 only:
(i) the Machine account,
(ii) the Provision for Depreciation – Machine account, and
(iii) the Assets Disposals account.

5A On 1 January 20X1 a business purchased a laser printer costing £1,800. The printer
has an estimated life of 4 years after which it will have no residual value.
It is expected that the output from the printer will be:
Year Sheets printed
20X1 35,000
20X2 45,000
20X3 45,000
20X4 55,000
180,000
Require
d:
Calculate the annual depreciation charges for 20X1, 20X2, 20X3 and 20X4 on the laser
(a) printer
on the following bases:
(i) the straight line basis,
(ii) the diminishing balance method at 60% per annum, and
(iii) the units of output method.
Note: Your workings should be to the nearest
£.
Suppose that in 20X4 the laser printer were to be sold on 1 July for £200 and that the
(b) business
had chosen to depreciate it at 60% per annum using the diminishing balance method applied
 on a month for month basis. ‘

Reconstruct the following accounts for 20X4 only:

(i) the Laser Printer account,
(ii) the Provision for Depreciation – Laser Printer account, and
(iii) the Assets Disposals account.
(
‘
6 Prepare manufacturing, trading and profit and loss accounts from the following
balances of W Miller for the year ended 31 December 20X3.
Stocks at 1 January 20X3: £
Raw materials 25,400
Work in progress 31,100
Finished goods 23,260
Purchases: Raw materials 91,535
Carriage on raw materials 1,960
Direct labour 84,208
Office salaries 33,419
Rent 5,200
Office lighting and heating 4,420
Depreciation: Works machinery 10,200
Office equipment 2,300
Sales 318,622
Factory fuel and power 8,120
Rent is to be apportioned: Factory 3/4; Office 1/4. Stocks at 31 December 20X3 were:
Raw materials £28,900; Work in progress £24,600; Finished goods £28,840.

7 From the following information, draw up a manufacturing and trading account for the
six months ending 30 September 20X5. You should show clearly:
(a) Cost of raw materials consumed.
(b) Prime cost of production.
(c) Production cost of finished goods.
(d) Gross profit on sales.
£
Stocks, 1 April 20X5:
Raw materials 2,990
Work-in-progress 3,900
Finished goods 15,300
Stocks, 30 September 20X5:
Raw materials 4,200
Work-in-progress 3,600
Finished goods 17,700
Purchases of raw materials 15,630
Carriage on raw materials 126
Direct wages 48,648
Factory general expenses 7,048
Office salaries 22,200
Depreciation of office furniture 420
Carriage outwards 191
Advertising 1,472
Bad debts 200
Sales less returns 112,410
Sales of scrap 1,317
Discounts received 188
Depreciation of factory equipment 4,200
Rent and business rates (factory three-quarters, office one quarter) 2,800
‘9. E Wilson is a manufacturer. His trial balance at 31 December 20X2 is as follows:
£ £
Delivery van expenses 1,760
Lighting and heating: Factory 7,220
Office 1,490
Manufacturing wages 72,100
General expenses: Factory 8,100
Office 1,940
Sales reps: commission 11,688
Purchase of raw materials 57,210
Rent: Factory 6,100
Office 2,700
Machinery (cost £40,000) 28,600
Office equipment (cost £9,000) 8,200
Office salaries 17,740
Debtors 34,200
Creditors 9,400
Bank 16,142
194,80
Sales 0
Van (cost £6,800) 6,200
Stocks at 31 December 20X1:
Raw materials 13,260
Finished goods 41,300
Drawings 24,200
155,95
Capital 0
360,15 360,15
0 0

Prepare the manufacturing, trading and profit and loss accounts for the year ended 31
December 20X2 and a balance sheet as at that date. Give effect to the following
adjustments:

Stocks at 31 December 20X2: raw materials £14,510; finished goods £44,490. There
is no work in progress.
Depreciate machinery £3,000; office equipment £600; van £1,200.
Manufacturing wages due but unpaid at 31 December 20X2 £550; office rent prepaid
£140.
 10. Jean Marsh owns a small business making and selling children’s toys. The following
trial balance was extracted from her books on 31 December 20X9.
Dr Cr
£ £
Capital 15,000
Drawings 2,000
Sales 90,000
Stocks at 1 January 20X9:
Raw materials 3,400
Finished goods 6,100
Purchases of raw materials 18,000
Carriage inwards 800
Factory wages 18,500
Office salaries 16,900
J Marsh: salary and expenses 10,400
General expenses:
Factory 1,200
Office 750
Lighting 2,500
Rent 3,750
Insurance 950
Advertising 1,400
Bad debts 650
Discount received 1,600
Carriage outwards 375
Plant and machinery, at cost less depreciation 9,100
Car, at cost less depreciation 4,200
Bank 3,600
Cash in hand 325
Debtors and creditors 7,700 6,000
112,60 112,60
0 0
You are given the following additional information.
1 Stocks at 31 December 20X9
Raw materials £2,900
Finished goods £8,200
There was no work in
progress.
Depreciation for the year is to be charged as follows:
Plant and machinery £1,500
Car £500
At 31 December 20X9 Insurance paid in advance was £150 and Office general
expenses unpaid were £75.
Lighting and rent are to be apportioned: 4/5 Factory, 1/5 Office
Insurance is to be apportioned: 3/4 Factory, 1/4 Office
Jean is the business’s salesperson and her salary and expenses are to be treated as
a selling expense. She has sole use of the business’s car.
Questions:
For the year ended 31 December 20X9 prepare
(a) a manufacturing account showing prime cost and factory cost of production.
(b) a trading account. ‘
‘
(c) a profit and loss account, distinguishing between administrative and selling costs.
(d) a balance sheet as at 31 December 20X9.*
 11 The financial year end of Mendip Limited is 30 June. At 30 June 20X2, the following
bal-ances are available:
£
Freehold Land and Buildings at cost 143,000
Plant and machinery at cost 105,000
Accumulated depreciation on plant and machinery 23,000
Purchase of raw materials 130,100
Sales 317,500
Factory rates 3,000
Factory heat and light 6,500
Debtors 37,200
Creditors 30,900
Wages (including £15,700 for supervision) 63,000
Direct factory expenses 9,100
Selling expenses 11,000
Office salaries and general expenses 43,000
Bank 24,500
General reserve 30,000
(Credit
Profit and loss account 18,000 )
Stocks 1 July 20X1: Raw materials 20,000
Finished goods 38,000
Dividends paid: Preference shares 840
Ordinary shares 20,000

(i) The stocks at 30 June 20X2 were: raw materials £22,000; finished goods £35,600.
(ii) Salaries include £6,700 for directors’ fees.
(iii) Depreciation is to be charged at 10% on cost of plant and machinery.
Required
Prepare a manufacturing, trading, profit and loss account for the year ending 30 June 20X2.

12. State which depreciation method will be the most appropriate in the case of each of
the following assets and why. Also, indicate to what extent obsolescence will affect each
of the assets.

(a) A delivery van used by a baker.

(b) A filing cabinet.
(c) A shop held on a 20 year lease.
A plastic moulding machine to manufacture a new novelty – plastic fireguards. It is
(d) expected
that these will be very popular next Christmas and that sales will continue for a year of
two
thereafter but at a very much lower level.
Machine X. This machine is used as a standby when the normal machines are being
(e) main-
tained. Occasionally it is used to increase capacity when there is a glut of orders.
Machine X is
of an old type and is inefficient compared with new machines. When used on a full-time
basis,
the machine should last for approximately four years. ‘
13 The following list of balances as at 31 July 20X6 has been extracted from the books
of
Jane Seymour who commenced business on 1 August 20X5 as a designer and
manufacturer of
kitchen furniture:

£
Plant and machinery, at cost on 1 August 20X5 60,000
Motor vehicles, at cost on 1 August 20X5 30,000
Loose tools, at cost 9,000
Sales 170,000
Raw materials purchased 43,000
Direct factory wages 39,000
Light and power 5,000
Indirect factory wages 8,000
Machinery repairs 1,600
Motor vehicle running expenses 12,000
Rent and insurances 11,600
Administrative staff salaries 31,000
Administrative expenses 9,000
Sales and distribution staff salaries 13,000
Capital at 1 August 20X5 122,000
Sundry debtors 16,500
Sundry creditors 11,200
Balance at bank 8,500
Drawings 6,000

Additional information for the year ended 31 July 20X6:

(i) It is estimated that the plant and machinery will be used in the business for 10 years
and the
motor vehicles used for 4 years: in both cases it is estimated that the residual value
will be nil.
The straight line method of providing for depreciation is to be used.
(ii) Light and power charges accrued due at 31 July 20X6 amounted to £1,000 and
insurances pre-
paid at 31 July 20X6 totalled £800.
(iii) Stocks were valued at cost at 31 July 20X6 as follows:

Raw materials £ 7,000

Finished goods £10,000

(iv) The valuation of work in progress at 31 July 20X6 included variable and fixed factory
over-heads and amounted to £12,300.
(v) Two-thirds of the light and power and rent and insurances costs are to be allocated
to the fac-tory costs and one-third to general administration costs.
(vi) Motor vehicle costs are to be allocated equally to factory costs and general
administration costs.

(vii) Goods manufactured during the year are to be transferred to the trading account at
£95,000.
(viii) Loose tools in hand on 31 July 20X6 were valued at £5,000.

Required:
(a) Prepare a manufacturing, trading and profit and loss account for the year ended 31
July 20X6 of Jane Seymour.