TEST YOUR KNOWLEDGE:-
Multiple Choice Questions:-
Ques 1: Under-statement of closing work in progress in the period will
(a) Understate cost of goods manufactured in that period.
(b) Overstate current assets.
(c) Understate net income in that period.
(d) None of the three.
Ques 2: Sales is equal to
(a) Cost of goods sold – Gross profit.
(b) Cost of goods sold + Gross profit.
(c) Gross profit – Cost of goods sold.
(d) Net profit + cost of goods sold.
Ques 3: Indirect Manufacturing expenses are also called
(a) Manufacturing overhead.
(b) Production overhead.
(c) Works overhead.
(d) All the three.
Ques 4: Sale value of the by-product is credited to
(a) Manufacturing account.
(b) Capital account.
(c) Overheads account.
(d) Trading account.
Ques 5: Manufacturing account shows
(a) Total cost of manufacturing the finished products.
(b) It provides details of factory cost.
(c) It facilitates reconciliation of financial books with cost records.
(d) All the three.
Ques 1: Write short note on By-products.
Ans: By-products generally have insignificant value as compared to the value of main product. They are generally valued at net realisable value, if their costs cannot be separately identified. It is often treated, as “Miscellaneous income” but the correct treatment would be to credit the sale value of the by-product to Manufacturing Account so as to reduce to that extent, the cost of manufacture of main product.
Ques 2: Differentiate between Direct Manufacturing Expenses and Indirect Manufacturing expenses
Ans: Direct manufacturing expenses are costs, other than material or wages, which are incurred for a specific product or saleable service.
Indirect Manufacturing expenses are also called Manufacturing overhead, Production overhead, Works overhead, etc. Overhead is defined as total cost of indirect material, indirect wages and indirect expenses.
Ques 1: Mr. Pankaj runs a factory which produces motor spares of export quality. The following details were obtained about his manufacturing expenses for the year ended on 31.3.2016.
Ques 2: Following are the Manufacturing A/c, Creditors A/c and Trading A/c provided by Ms. Shivi related to 2016-17. There are certain figures missing from these accounts.
1) Purchase of machinery worth ₹10,00,000 has been omitted. Machinery are chargeable at a depreciation rate of 10%.
2) Wages include the following
Paid to Factory Workers - ₹3,00,000
Paid to labour at office - ₹50,000
3) Direct Expenses include following:
You are required to prepare revised Manufacturing A/c, and Raw Material A/c.
1) Since purchase of Machinery worth ₹10,00,000 has been omitted.
So, depreciation omitted from being charged = ₹10,00,000 X 10%
Correct total depreciation expense = ₹(2,00,000 + 1,00,000)
2) Wages worth ₹50,000 will be excluded from manufacturing account as they pertain to office and hence will be charged P&L A/c.
3) Expenses to be excluded from direct expenses:
Fuel charges are related to factory expenses and also freight inwards are incurred for bringing goods to factory/ godown so they are part of direct expenses.
Revised Balance to be transferred to Trading A/c: