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Difficulty: MediumPreparation of Manufacturing Account and Cost of Production

During the financial year ended 31 December 2025, Tunde Industrial Crafts reported the following manufacturing cost figures:

- Direct materials consumed: ₦450,000
- Direct wages paid: ₦220,000
- Direct expenses: ₦80,000
- Factory overheads: ₦150,000
- Work-in-progress (1 January 2025): ₦60,000
- Work-in-progress (31 December 2025): ₦40,000

What is the total cost of production for the year?

  1. ₦920,000Answer
  2. B
    ₦880,000
  3. C
    ₦900,000
  4. D
    ₦770,000

Answer

The total cost of production for the year is ₦920,000.
The correct total cost of production is derived by first adding direct materials (₦450,000), direct wages (₦220,000), and direct expenses (₦80,000) to find Prime Cost of ₦750,000. Adding factory overheads (₦150,000) gives ₦900,000. Adjusting for work-in-progress (+ ₦60,000 opening WIP - ₦40,000 closing WIP) yields ₦920,000.

Step-by-Step Solution

1
Calculate Prime Cost
Prime Cost = Direct Materials (₦450,000) + Direct Wages (₦220,000) + Direct Expenses (₦80,000) = ₦750,000
Prime cost comprises all direct manufacturing expenditures.
2
Add Factory Overheads to Prime Cost
Total Factory Overhead Cost = ₦750,000 + ₦150,000 = ₦900,000
Factory overheads represent indirect factory operational expenses.
3
Adjust for Opening and Closing Work-in-Progress
Cost of Production = ₦900,000 + Opening WIP (₦60,000) - Closing WIP (₦40,000) = ₦920,000
Opening work-in-progress is added to current production expenditures while uncompleted closing work-in-progress is deducted.

Key Concept

Preparation of Manufacturing Account and Cost of Production
Estimated Time:1m 30s
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Topics

Preparation of Manufacturing Account and Cost of Production

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