{"id":204925,"date":"2025-03-22T18:25:52","date_gmt":"2025-03-22T18:25:52","guid":{"rendered":"https:\/\/learnexams.com\/blog\/?p=204925"},"modified":"2025-03-22T18:25:54","modified_gmt":"2025-03-22T18:25:54","slug":"izzara-enterprise-manufactures-jeans","status":"publish","type":"post","link":"https:\/\/www.learnexams.com\/blog\/2025\/03\/22\/izzara-enterprise-manufactures-jeans\/","title":{"rendered":"Izzara enterprise manufactures jeans"},"content":{"rendered":"\n

Izzara enterprise manufactures jeans. It is the financial year-end for the business, and you have been contacted to prepare Izzara’s year-end accounts. The bookkeeper provides you with the following extraction of Izzara’s accounts.<\/p>\n\n\n\n

Items<\/th>RM<\/th><\/tr>
Depreciation – plant and machinery<\/td>60,000<\/td><\/tr>
Depreciation – office building<\/td>25,000<\/td><\/tr>
Opening inventories :<\/td><\/td><\/tr>
Raw materials<\/td>42,000<\/td><\/tr>
Work-in-progress<\/td>28,000<\/td><\/tr>
Finished goods<\/td>46,000<\/td><\/tr>
Purchase of raw materials<\/td>516,000<\/td><\/tr>
Electricity and power<\/td>42,000<\/td><\/tr>
Bookkeepers’ salaries<\/td>34,000<\/td><\/tr>
Production wages<\/td>118,000<\/td><\/tr>
Indirect labour<\/td>26,000<\/td><\/tr>
Rent and rates<\/td>42,000<\/td><\/tr>
Repairs to plant<\/td>18,000<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

Additional information: Closing inventories at 31 December 2023.<\/p>\n\n\n\n

<\/th>RM<\/th><\/tr>
Raw materials<\/td>50,000<\/td><\/tr>
Work-in-progress<\/td>22,000<\/td><\/tr>
Finished goods<\/td>52,000<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

75% of rent and rates and 80% of electricity and power relate to the factory.<\/p>\n\n\n\n

Required:<\/p>\n\n\n\n

    \n
  1. Compute total prime cost.<\/li>\n\n\n\n
  2. Calculate total manufacturing cost.<\/li>\n<\/ol>\n\n\n\n

    The correct answer and explanation is:<\/mark><\/strong><\/p>\n\n\n\n

    Computation of Total Prime Cost & Total Manufacturing Cost<\/strong><\/h3>\n\n\n\n

    1. Prime Cost Calculation:<\/strong><\/h4>\n\n\n\n

    Prime cost includes direct costs of production, which are:<\/p>\n\n\n\n

      \n
    • Direct Raw Material Costs<\/strong><\/li>\n\n\n\n
    • Direct Labor Costs<\/strong><\/li>\n<\/ul>\n\n\n\n

      Prime Cost=(Opening Raw Materials+Raw Material Purchases\u2212Closing Raw Materials)+Production Wages\\text{Prime Cost} = (\\text{Opening Raw Materials} + \\text{Raw Material Purchases} – \\text{Closing Raw Materials}) + \\text{Production Wages} =(42,000+516,000\u221250,000)+118,000= (42,000 + 516,000 – 50,000) + 118,000 =508,000+118,000= 508,000 + 118,000 =626,000= 626,000<\/p>\n\n\n\n

      Total Prime Cost = RM 626,000<\/strong><\/p>\n\n\n\n

      \n\n\n\n

      2. Total Manufacturing Cost Calculation:<\/strong><\/h4>\n\n\n\n

      Total manufacturing cost includes prime cost plus indirect factory costs: Total Manufacturing Cost=Prime Cost+Factory Overheads+Opening WIP\u2212Closing WIP\\text{Total Manufacturing Cost} = \\text{Prime Cost} + \\text{Factory Overheads} + \\text{Opening WIP} – \\text{Closing WIP}<\/p>\n\n\n\n

      Factory Overheads:<\/p>\n\n\n\n

        \n
      • Indirect Labor = RM 26,000<\/li>\n\n\n\n
      • Depreciation on Plant & Machinery = RM 60,000<\/li>\n\n\n\n
      • Rent & Rates (75% of RM 42,000) = RM 31,500<\/li>\n\n\n\n
      • Electricity & Power (80% of RM 42,000) = RM 33,600<\/li>\n\n\n\n
      • Repairs to Plant = RM 18,000<\/li>\n<\/ul>\n\n\n\n

        Total Overheads = RM 169,100<\/strong> Total Manufacturing Cost=626,000+169,100+28,000\u221222,000\\text{Total Manufacturing Cost} = 626,000 + 169,100 + 28,000 – 22,000 =626,000+169,100+6,000= 626,000 + 169,100 + 6,000 =801,100= 801,100<\/p>\n\n\n\n

        Total Manufacturing Cost = RM 801,100<\/strong><\/p>\n\n\n\n

        \n\n\n\n

        Explanation<\/strong><\/h3>\n\n\n\n

        The prime cost represents the core direct costs of manufacturing, including raw materials and wages paid to production workers. It is a crucial component of cost accounting as it directly influences the cost of goods produced.<\/p>\n\n\n\n

        To calculate the total manufacturing cost, factory overheads are added to the prime cost. These include indirect costs such as indirect labor, plant depreciation, and utility expenses attributed to factory operations. Furthermore, adjustments for work-in-progress inventories ensure that only costs related to completed work are included.<\/p>\n\n\n\n

        The significance of these calculations lies in determining the accurate cost of production, which helps businesses set appropriate selling prices and maintain profitability.<\/p>\n","protected":false},"excerpt":{"rendered":"

        Izzara enterprise manufactures jeans. It is the financial year-end for the business, and you have been contacted to prepare Izzara’s year-end accounts. The bookkeeper provides you with the following extraction of Izzara’s accounts. Items RM Depreciation – plant and machinery 60,000 Depreciation – office building 25,000 Opening inventories : Raw materials 42,000 Work-in-progress 28,000 Finished […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[25],"tags":[],"class_list":["post-204925","post","type-post","status-publish","format-standard","hentry","category-exams-certification"],"_links":{"self":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/204925","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/comments?post=204925"}],"version-history":[{"count":0,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/204925\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/media?parent=204925"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/categories?post=204925"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/tags?post=204925"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}