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

The following figures were extracted from the accounting records of Danjuma Manufacturing Company for the year ended 31 December 2025:

ItemAmount (₦\text{₦})
Cost of raw materials consumed140,000
Direct wages60,000
Direct expenses10,000
Factory overheads45,000
Work-in-progress at 1 January 202525,000
Work-in-progress at 31 December 202518,000

What is the total cost of production for the year?

  1. A
    ₦248,000\text{₦}248,000
  2. B
    ₦255,000\text{₦}255,000
  3. ₦262,000\text{₦}262,000Answer
  4. D
    ₦298,000\text{₦}298,000

Answer

The total cost of production for the year is ₦262,000\text{₦}262,000.
The correct answer is ₦262,000\text{₦}262,000. Prime cost (₦140,000+₦60,000+₦10,000=₦210,000\text{₦}140,000 + \text{₦}60,000 + \text{₦}10,000 = \text{₦}210,000) plus factory overheads (₦45,000\text{₦}45,000) equals ₦255,000\text{₦}255,000. Adding opening work-in-progress (₦25,000\text{₦}25,000) and deducting closing work-in-progress (₦18,000\text{₦}18,000) yields ₦262,000\text{₦}262,000.

Step-by-Step Solution

1
Calculate Prime Cost
Prime Cost=Raw Materials Consumed+Direct Wages+Direct Expenses=₦140,000+₦60,000+₦10,000=₦210,000\text{Prime Cost} = \text{Raw Materials Consumed} + \text{Direct Wages} + \text{Direct Expenses} = \text{₦}140,000 + \text{₦}60,000 + \text{₦}10,000 = \text{₦}210,000.
Prime cost consists of all direct costs incurred in manufacturing.
2
Calculate Total Factory Cost before WIP adjustment
Total Factory Cost=Prime Cost+Factory Overheads=₦210,000+₦45,000=₦255,000\text{Total Factory Cost} = \text{Prime Cost} + \text{Factory Overheads} = \text{₦}210,000 + \text{₦}45,000 = \text{₦}255,000.
Factory overheads represent indirect manufacturing expenses.
3
Adjust for Opening and Closing Work-in-Progress
Cost of Production=Total Factory Cost+Opening WIP−Closing WIP=₦255,000+₦25,000−₦18,000=₦262,000\text{Cost of Production} = \text{Total Factory Cost} + \text{Opening WIP} - \text{Closing WIP} = \text{₦}255,000 + \text{₦}25,000 - \text{₦}18,000 = \text{₦}262,000.
Opening WIP represents unfinished goods brought forward to be completed this period, while closing WIP represents goods unfinished at year-end that must be deducted.

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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