Grace owns a factory which makes shoes. She buys handbags from a supplier and sells the shoes and handbags. Grace prepares her financial statements to 31 March each year. At 31 March 2025, her ledger account balances included the following: Inventory at 1 April 2024 $ Raw materials 5345 Work in progress 13820 Finished goods (shoes) 27540 Purchases of raw materials 72870 Carriage inwards of raw materials 1220 Wages: Factory operatives 29175 Factory supervisor 24000 Office staff 26 170 Rent and insurance 12000 Factory power 14 120 Factory equipment – at cost 180000 Factory equipment – provision for depreciation 64800 Additional information 1 Inventory at 31 March 2025: Raw materials $7100 Work in progress $14390 Finished goods (shoes) $27985 2 Rent and insurance is to be apportioned 65% to the factory and 35% to the office. 3 At 31 March 2025, Grace owed $1315 for factory power and $2000 for the factory supervisor's wages. 4 Factory equipment is depreciated at 20% per annum using the reducing balance method.

1. (a)Prepare Grace's manufacturing account for the year ended 31 March 2025.[10]
2. (b)Grace buys handbags for $14 each and sells them for $27 each. Grace counted her inventory of handbags on 31 March 2025 and found that: • She had a total of 255 handbags. • 15 handbags needed to be cleaned before sale. Grace needed to pay a total of $21 to have them cleaned. She expected to sell them for $25 each. • 3 handbags had become damaged. Grace could not repair these handbags and decided to sell them for $13 each. Calculate the valuation of Grace's inventory of handbags at 31 March 2025.[4]
3. (c)State how Grace is applying the historic cost accounting principle when she prepares her financial statements.[1]
4. (d)Grace is considering producing the handbags in her factory instead of buying them in. Advise Grace whether or not she should start producing handbags in her factory. Justify your answer with points for and against Grace producing handbags in her factory.[5]