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Difficulty: EasyTransfer of Finished Goods at Market Value and Manufacturing Profit

A manufacturing business incurs a total production cost of N250,000\text{N}250,000 during the accounting period. If finished goods are transferred to the trading account at a market value incorporating a 20%20\% mark-up on production cost, what is the amount of manufacturing profit?

  1. N50,000\text{N}50,000Answer
  2. B
    N300,000\text{N}300,000
  3. C
    N41,667\text{N}41,667
  4. D
    N200,000\text{N}200,000

Answer

The manufacturing profit is N50,000\text{N}50,000.
The correct answer correctly calculates manufacturing profit as 20%20\% of the cost of production (N250,000×0.20=N50,000\text{N}250,000 \times 0.20 = \text{N}50,000).

Step-by-Step Solution

1
Identify the total cost of production and the given profit mark-up percentage.
Total Cost of Production = N250,000\text{N}250,000; Mark-up = 20%20\%.
Manufacturing profit is earned by transferring finished goods from the manufacturing account to the trading account at market value above cost.
2
Calculate the manufacturing profit using the mark-up on production cost.
Manufacturing Profit=20%×N250,000=N50,000\text{Manufacturing Profit} = 20\% \times \text{N}250,000 = \text{N}50,000.
Applying the percentage mark-up directly to the cost of production gives the profit generated during the manufacturing process.

Key Concept

Manufacturing profit is the excess of the transfer market value of finished goods over their actual cost of production.
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Topics

Transfer of Finished Goods at Market Value and Manufacturing Profit

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