Question

Stripes Limited is a manufacturing entity.
The following figures were included in its trial balance as at 31 December
2019. You are advised that the building costs relate 70% to its factory and 30%
to its administrative offices and that 80% of the light and power costs relate to
the production activities. You are required to calculate the total cost of goods
producted for the year to 31 December 2019.
				€
Inventories at 1 January 2019:
	Work in Progress			10,000
	Raw materials			5,000
Wages:
	Factory			250,000
	Directors			200,000
	Sales & Marketing			80,000
Building Depreciation				65,000
Electricity				12,000
Purchases of raw materials				180,000
Advertising				20,000
Inventories at 31 December 2019:
	Work in Progress			3,000
	Raw Materials			7,000
Repair of production machinery				4,000
Machinery depreciation				27,000

Answer 1

Cost of Goods Produced (COGP) = Opening WIP + Raw Material Consumption + Direct Production Expenses - Closing WIP.

Opening WIP = 10,000

RM Consumption = Opening stock + Purchase - Closing stock = 5000 + 180000 - 7000 = 1,78,000

Direct Production Expenses = Factory Wages + Factory Builiding Depreciation + Electricty used in Production + Production Macinery cost = 2,50,000 + 70% of 65000 + 80% of 12000 + 4000 + 27000 = 3,36,100.

Closing WIP = 3,000.

So, here COGP = 10,000 + 1,78,000 + 3,36,100 - 3,000 = € 5,21,100.

Director's Salary is not includible in COGP as he is into administartion and not involved directly in production.

Sales & Marketing and Advertising are Selling expenses and are incurred after goods are produced and hence not a part of COGP.