The following financial details were extracted from the books of Babs Flour Mills for the year ended 31st December 2025:
| Expense Item | Amount (₦) |
|---|---|
| Direct raw materials consumed | 1,500,000 |
| Direct factory wages paid | 800,000 |
| Indirect factory labor | 420,000 |
| Factory machinery depreciation | 250,000 |
| Machine lubricants and factory consumables | 90,000 |
| Rent and rates paid | 600,000 |
| Factory insurance paid | 160,000 |
Additional information:
1. Rent and rates paid includes ₦100,000 paid in advance for 2026. Rent is apportioned 80% to the factory and 20% to the administrative office.
2. Factory insurance has an outstanding accrued liability of ₦40,000 at the end of the financial year.
What is the total amount of factory overheads to be charged in the Manufacturing Account for the year?
- ₦1,360,000Answer
- B₦1,440,000
- C₦2,160,000
- D₦1,560,000
Answer
The total factory overheads to be charged in the Manufacturing Account is ₦1,360,000.
The correct total of ₦1,360,000 is derived by aggregating all indirect costs attributable to production: Indirect labor (₦420,000), Factory portion of rent after deducting prepayment [80% × (₦600,000 - ₦100,000) = ₦400,000], Factory machinery depreciation (₦250,000), Machine lubricants and consumables (₦90,000), and Factory insurance after adding accruals (₦160,000 + ₦40,000 = ₦200,000). Direct raw materials and direct wages belong to Prime Cost and are excluded.
Step-by-Step Solution
Key Concept
Factory Overheads and Indirect Manufacturing Costs
Estimated Time:2m 0s