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Zorluk: OrtaInter-departmental Transfers and Provision for Unrealized Profit

Kano Manufacturing Enterprise operates two departments: Processing and Assembly. The Processing Department transfers semi-finished goods to the Assembly Department at cost plus a mark-up of 40%40\%. At the end of the financial year, the Assembly Department held closing inventory valued at N84,000\text{N}84,000, of which 75%75\% represents goods transferred from the Processing Department. Calculate the required provision for unrealized profit on the closing inventory of the Assembly Department.

Cevap: 18000 NGN

Cevap

The required provision for unrealized profit on the closing inventory of the Assembly Department is 18,000 NGN.
The provision for unrealized profit is calculated by isolating the transferred goods in closing inventory (75% of N84,000 = N63,000) and applying the profit margin rate derived from the 40% mark-up on cost: Margin = 40 / 140 = 2/7. Multiplying N63,000 by 2/7 yields N18,000.

Adım Adım Çözüm

1
Calculate the value of transferred stock contained within the Assembly Department's closing inventory.
Transferred Stock = 75% of N84,000 = N63,000.
Only the portion of closing stock acquired via inter-departmental transfer contains unrealized departmental profit.
2
Convert the transfer mark-up rate to a profit margin rate based on the transfer price.
Profit Margin = 40 / (100 + 40) = 40/140 = 2/7.
The inventory valuation is given at transfer price (selling price), so the mark-up on cost must be converted to a margin on transfer price.
3
Multiply the transferred stock value by the profit margin rate to compute the provision for unrealized profit.
Provision for Unrealized Profit = (2 / 7) * N63,000 = N18,000.
This represents the profit loaded onto the transferred goods that remains unrealized because the goods have not yet been sold to external customers.

Anahtar Kavram

Provision for Unrealized Profit on Inter-departmental Stock Transfers
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Inter-departmental Transfers and Provision for Unrealized Profit

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