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

The following figures were extracted from the books of Adeola Manufacturing Enterprise for the year ended 31st December 2025:

Cost ComponentAmount (N\text{N})
Prime Cost400,000400,000
Factory Overheads100,000100,000

Finished goods are transferred from the factory to the trading account at market value, calculated at a mark-up of 25%25\% on the total cost of production. What is the manufacturing profit for the year?

  1. A
    N100,000\text{N}100,000
  2. N125,000\text{N}125,000Answer
  3. C
    N156,250\text{N}156,250
  4. D
    N625,000\text{N}625,000

Answer

The manufacturing profit for the year is N125,000\text{N}125,000.
The correct response of N125,000\text{N}125,000 is determined by first computing total cost of production (Prime Cost of N400,000\text{N}400,000 + Factory Overheads of N100,000=N500,000\text{N}100,000 = \text{N}500,000) and then taking 25%25\% of that amount (0.25×N500,000=N125,0000.25 \times \text{N}500,000 = \text{N}125,000).

Step-by-Step Solution

1
Calculate the total cost of production
Total Cost of Production=Prime Cost+Factory Overheads=N400,000+N100,000=N500,000\text{Total Cost of Production} = \text{Prime Cost} + \text{Factory Overheads} = \text{N}400,000 + \text{N}100,000 = \text{N}500,000
Manufacturing profit is added to the total cost of production to determine the transfer value.
2
Calculate the manufacturing profit
Manufacturing Profit=25%×N500,000=N125,000\text{Manufacturing Profit} = 25\% \times \text{N}500,000 = \text{N}125,000
The mark-up of 25%25\% is applied directly to the total cost of production.

Key Concept

Manufacturing profit represents the internal profit earned by the factory when finished goods are transferred to the trading account at market value rather than at cost price.
Estimated Time:1m 30s
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Topics

Transfer of Finished Goods at Market Value and Manufacturing Profit

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