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Difficulty: MediumFactory Overheads and Indirect Manufacturing Costs

Zentex Shoe Manufacturing Enterprise extracted the following cost records for the financial year ended 31st December 2025:

- Factory supervisor's salary: ₦180,000
- Depreciation of factory machinery: ₦95,000
- Factory electricity paid: ₦120,000 (including ₦15,000 paid in advance for the next period)
- Indirect factory materials consumed: ₦45,000
- Direct wages paid to assembly workers: ₦300,000

What is the total factory overhead for the year?

  1. ₦425,000Answer
  2. B
    ₦455,000
  3. C
    ₦440,000
  4. D
    ₦725,000

Answer

The total factory overhead for the year is ₦425,000.
The correct calculation isolates all indirect manufacturing expenses—supervisor salary (₦180,000), machine depreciation (₦95,000), indirect materials (₦45,000), and electricity adjusted for prepayment (₦120,000 - ₦15,000 = ₦105,000)—and sums them to ₦425,000. Direct wages are excluded as they are part of prime cost.

Step-by-Step Solution

1
Calculate the net factory electricity expense for the current financial year by adjusting for prepayment.
₦120,000 - ₦15,000 = ₦105,000
Prepayments represent expenses paid for a future period and must be deducted from cash paid under the accrual concept.
2
Identify all indirect manufacturing expenses (factory overheads) and exclude direct costs.
Factory Supervisor's Salary = ₦180,000; Depreciation of Machinery = ₦95,000; Indirect Materials = ₦45,000; Adjusted Electricity = ₦105,000. (Direct Wages of ₦300,000 excluded).
Factory overheads consist strictly of indirect production expenses. Direct wages belong to prime cost.
3
Sum up all indirect manufacturing costs to determine total factory overheads.
₦180,000 + ₦95,000 + ₦105,000 + ₦45,000 = ₦425,000
Adding all verified indirect costs yields the complete factory overhead figure.

Key Concept

Computation and Accrual Adjustment of Factory Overheads
Estimated Time:1m 30s
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Topics

Factory Overheads and Indirect Manufacturing Costs

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