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Difficulty: MediumValuation and Adjustment for Work-in-Progress (WIP)

The following figures were extracted from the books of Ade & Sons Manufacturing Enterprises for the financial year ended 31st December 2025:

- Direct materials used: ₦145,000
- Direct labor cost: ₦65,000
- Factory overhead expenses: ₦38,000
- Opening work-in-progress (1st Jan 2025): ₦22,000
- Closing work-in-progress (31st Dec 2025): ₦27,000

What is the total cost of production for the year?

Answer: 243000 ₦

Answer

The total cost of production for the year is ₦243,000.
To calculate the total cost of production, add direct materials consumed (₦145,000) and direct labor (₦65,000) to find the prime cost of ₦210,000. Add factory overhead expenses (₦38,000) to obtain the gross cost of production of ₦248,000. Finally, add opening work-in-progress (₦22,000) and subtract closing work-in-progress (₦27,000) to arrive at the net cost of production of ₦243,000.

Step-by-Step Solution

1
Calculate Prime Cost
₦210,000
Prime cost is the sum of all direct manufacturing costs, including direct materials consumed and direct labor.
2
Add Factory Overheads
₦248,000
Factory overheads represent indirect factory costs incurred during the manufacturing process.
3
Adjust for Opening and Closing Work-in-Progress
₦243,000
Opening WIP is added because it represents partially finished goods from the previous period completed in the current period. Closing WIP is deducted because it represents partially finished goods that are not yet complete at year-end.

Key Concept

Valuation and Adjustment for Work-in-Progress (WIP) in Manufacturing Accounts
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Topics

Valuation and Adjustment for Work-in-Progress (WIP)

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