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Difficulty: MediumFactory Overheads and Indirect Manufacturing Costs

Apex Garments Ltd. extracted the following expense records for the financial year ended 31st December 2025:

- Factory rent paid: ₦450,000 (including ₦50,000 prepaid for 2026)
- Indirect factory wages: ₦280,000
- Factory supervisor salary paid: ₦150,000 (with ₦30,000 accrued and unpaid)
- Lubricants for manufacturing machinery: ₦60,000
- Direct factory wages: ₦800,000
- Office administrative rent: ₦120,000

What is the total factory overhead for the year?

  1. ₦920,000Answer
  2. B
    ₦960,000
  3. C
    ₦1,040,000
  4. D
    ₦1,720,000

Answer

₦920,000
Factory overheads encompass all indirect manufacturing expenses incurred inside the factory. Factory rent is adjusted for prepayment (₦450,000 - ₦50,000 = ₦400,000) and supervisor salary is adjusted for accrual (₦150,000 + ₦30,000 = ₦180,000). Adding indirect wages (₦280,000) and lubricants (₦60,000) gives total factory overheads of ₦920,000. Direct wages belong to prime cost, and office administrative rent is an administrative expense.

Step-by-Step Solution

1
Adjust factory rent for prepayment
₦450,000 - ₦50,000 = ₦400,000
Prepaid rent relates to the next period and must be deducted from cash paid.
2
Adjust factory supervisor salary for accrual
₦150,000 + ₦30,000 = ₦180,000
Accrued expenses incurred during the current period must be added to cash paid.
3
Sum all indirect manufacturing expenses (factory overheads)
₦400,000 (Factory Rent) + ₦280,000 (Indirect Wages) + ₦180,000 (Supervisor Salary) + ₦60,000 (Lubricants) = ₦920,000
Factory overheads consist of all indirect costs incurred in the manufacturing area. Direct wages belong to prime cost, and office administrative rent belongs to administrative expenses.

Key Concept

Calculation and adjustment of indirect manufacturing costs and factory overheads
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Topics

Factory Overheads and Indirect Manufacturing Costs

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