Salman owns a footwear factory. He sells to all of the three local shoe shops. Salman prepares his financial statements to 30 April each year. At 30 April 2023, Salman's ledger account balances included the following. $ Inventory at 1 May 2022 Raw materials: 8190 Work in progress: 15200 Finished goods: 23860 Purchases of raw materials: 78420 Purchases of finished goods: 90144 Wages Factory supervisor: 27500 Factory operatives: 52396 Rates and insurance: 17528 Factory electricity: 11442 General factory expenses: 8244 Factory equipment – at cost: 90000 Factory equipment – provision for depreciation: 43920 Balance at bank: 31000 debit Additional information 1 Inventory at 30 April 2023 Raw material: 8000 Work in progress: 16100 Finished goods: 24590 2 Salman applies a mark-up of 50% to his cost of sales. 3 Rates and insurance are to be apportioned three quarters to the factory and one quarter to the office. 4 At 30 April 2023, factory electricity of $1048 was unpaid. 5 Factory equipment is depreciated at 20% per annum using the reducing balance method.

Mark scheme

Marking points from the official mark scheme (May/June 2023). The mark or mark type is shown in brackets.

1. [1] (a) Cost of material consumed 78610 (Opening raw material + Purchases raw material - Closing raw material)
2. [1] (a) Direct wages 52396 (Factory operatives)
3. [1] (a) Prime cost 131006 (OF)
4. [1] (a) Wages of factory supervisor 27500
5. [1] (a) Rates and insurance (17528 × 3/4) 13146
6. [1] (a) Factory electricity (11442 + 1048) 12490
7. [1] (a) General expenses 8244
8. [1] (a) Depreciation of factory equipment (90000 – 43920) × 20% 9216
9. [1] (a) Cost of production 201602 (OF) (Manufacturing cost excluding WIP adjustment)
10. [1] (a) For both Opening work-in-progress 15200 and Less closing work-in-progress 16100
11. [1] (a) Final Cost of production 200702 (OF)
12. [1] (b) Revenue 435174 (OF)
13. [1] (b) Cost of production 200702 (OF)
14. [1] (b) Purchases of finished goods 90144
15. [1] (b) Cost of sales 290116 (OF)
16. [1] (b) Gross profit 145058 (OF)
17. [1] (c) Advantage: Will be more profitable use of space/increase output
18. [1] (c) Advantage: Manufacturing appears to be profitable
19. [1] (c) Advantage: May not need to purchase finished goods
20. [1] (c) Advantage: Have high bank balance which will help to pay for conversion (Max 3 for advantages)
21. [1] (c) Disadvantage: May not be able to sell the extra output
22. [1] (c) Disadvantage: Conversion of office space may be costly
23. [1] (c) Disadvantage: May have to purchase additional factory equipment
24. [1] (c) Disadvantage: May be more appropriate/more profitable to use the funds for other things
25. [1] (c) Disadvantage: The space is necessary for office purposes (Max 3 for disadvantages)
26. [1] (c) Recommendation