Question

Mr Len Naidoo, the owner of Widget Distributors, has in the past imported widgets. However, from 1 January 20x8, he decided to manufacture the widgets himself.

Here is the abridged statement of financial position of Widget Distributors at 31 December 20x7:

Capital – Len Naidoo	2 000	Inventory (1 000 units)	800
Accounts payable	1 000	Accounts receivable	700
		Bank	1 500
	3 000		3 000

From a scrutiny of vouchers and other documents you find that these transaction have taken place during the year ended 31 December 20x8:

Cash transaction as per the cash book:

Receipts:

Capital introduced by Mr Naidoo                     R10 000

Accounts receivable                                        R6 000

Cash sales                                                        R2 000

Payments:

Accounts payable                                            R7 000

Drawings- Mr Naidoo                                      R2 500

Wages paid to manufacturing staff                  R3 000

Rent for factory                                               R1 200

Hire of specialised machinery                         R1 300

Amount owing, totalling R3 500 were written off as bad debts.

5 500 units were sold.

A royalty of 10 cents per completed unit manufactured during the year is payable in arears on 1 January of the following year.

In addition, the following balance at 31 December 20x8 were determined:

Accounts payable – raw material                     R3 500

Accounts receivable – trade debtors                R1 200

Inventory: Finished goods (4 500 units)          R?

Work – in – progress (2 000 units)                  R?

Raw material                                                    R2 500

Inventory is valued at factory cost using the first – in first – out basis.

Work – in – progress at 31 December 20x8 was 75% complete in respect of raw material, and 45% complete in respect of direct labour and overheads.

You are required to:

Prepare the statement of the cost of goods manufactured for Widget distributors for the year ended 31 December 20x8.

Calculate the gross profit of Widget Distributors for the year ended 31 December 20x8.

Answer 1