It seems like you're asking for a comprehensive set of formulas to tackle the entire accounting
problem presented in the image. That's a big task, but I can definitely guide you through the key
formulas you'll need to prepare the required financial statements and calculations for Toyah's factory.
This problem involves preparing a Manufacturing Account and then using its figures to prepare a
Statement of Comprehensive Income and a Statement of Financial Position.
Here are the essential formulas and concepts you'll need:
1. Manufacturing Account:
The goal here is to calculate the Cost of Goods Manufactured.
Prime Cost:
Prime Cost = Direct Material Cost + Direct Labour Cost
* Direct Material Cost: This is the cost of raw materials that go directly into the product.
Direct Material Cost = Opening Inventory of Raw Materials + Purchases of Raw Materia
* Direct Labour Cost: This is the cost of labour directly involved in the manufacturing process. In this
case, it would be "Factory operatives" wages.
Factory Overheads: These are indirect costs incurred in the factory.
Total Factory Overheads = Indirect Labour + Indirect Materials + Other Factory Expens
* Indirect Labour: Wages of factory supervisor, maintenance staff, etc. * Indirect Materials:
Consumables used in the factory but not part of the final product. * Other Factory Expenses:
Factory electricity, rates and insurance (apportioned to factory), general factory expenses, and
depreciation of factory machinery.
Cost of Production:
Cost of Production = Prime Cost + Total Factory Overheads + Opening Work-in-Progre
Cost of Goods Manufactured: This is the cost of the goods that have been completed during the
period.
Cost of Goods Manufactured = Cost of Production + Opening Inventory of Finished Goo
2. Statement of Comprehensive Income (Trading and Profit or Loss Account):
This statement shows the profitability of the business.
Gross Profit:
Gross Prof it = Revenue − Cost of Goods Sold
* Cost of Goods Sold (COGS): This is the cost of the finished goods that were actually sold.
Cost of Goods Sold = Opening Inventory of Finished Goods + Cost of Goods Manufactur
(Note: In a manufacturing business, the "Cost of Goods Manufactured" figure from the
running the business.
* Sales staff wages (if not part of factory overheads) * Office rates and insurance (apportioned to
office) * General office expenses (if any)
Net Profit:
Net Profit = Gross Profit − Total Operating Expenses
3. Statement of Financial Position (Balance Sheet):
This statement shows the assets, liabilities, and equity of the business at a specific point in time.
Non-Current Assets:
* Factory machinery (at cost less accumulated depreciation)
Carrying Amount of Machinery = Cost of Machinery − Provision for Depreciation
Current Assets:
* Inventory of raw materials (closing) * Inventory of work-in-progress (closing) * Inventory of finished
goods (closing)
Current Liabilities:
* Unpaid expenses (e.g., unpaid general factory expenses)
Key Calculations within these Statements:
Apportionment of Rates and Insurance:
* Factory portion: Total Rates & Insurance × (2/3) * Office portion: Total Rates & Insurance × (1/3)
Depreciation of Factory Machinery (Reducing Balance Method):
Depreciation Expense = (Cost of Machinery − Provision for Depreciation) × Depreciation
Steps to Follow:
Calculate Direct Material Cost: Use opening inventory, purchases, and closing inventory of raw
materials.
Identify Direct Labour Cost: This is usually wages for factory operatives.
Calculate Prime Cost: Add Direct Material Cost and Direct Labour Cost.
Calculate Factory Overheads: Sum up all indirect factory costs, including apportioned
rates/insurance, general factory expenses, and depreciation on factory machinery.
Calculate Cost of Production: Prime Cost + Factory Overheads + Opening WIP - Closing WIP.
Calculate Cost of Goods Manufactured: Cost of Production + Opening Finished Goods - Closing
Finished Goods.
Calculate Gross Profit: Revenue - Cost of Goods Sold (using the Cost of Goods Manufactured
figure).
Calculate Net Profit: Gross Profit - all other expenses (including office expenses).
Prepare Statement of Financial Position: List all assets (non-current and current) and liabilities,
ensuring the accounting equation (Assets = Liabilities + Equity) balances.
