Question Simulator

AS & A Level Accounting (9706)

Manufacturing accounts

4 questions · about 3% of the marks we indexed · examined in 4 of 9 sessions.

Questions by year

2025

  • 2025 May/June · Paper 32 · Q1 (a, b, c(i), c(ii))20 marksFactory profit and unrealised profit · Manufacturing account

2024

  • 2024 Oct/Nov · Paper 32 · Q1 (a(i), a(ii), b, c, d)25 marksFactory profit and unrealised profit · Manufacturing account

2023

  • 2023 Oct/Nov · Paper 32 · Q1 (a, e)8 marksFactory profit and unrealised profit

2022

  • 2022 Oct/Nov · Paper 32 · Q4 (a, b, c, d)25 marksFactory profit and unrealised profit · Manufacturing account

References only, not question text. Open Official paper ↗ where Cambridge publishes the paper, or see the official Cambridge past-papers page; for other papers, ask your school. “Paper 42” means Paper 4, variant 2.

Practice questions

Original questions written by HomiLabs in the style of the exam, with answers and mark schemes. They are not Cambridge past paper questions and have not been reviewed by Cambridge. Try each one before opening the answer.

Q1Factory profit and unrealised profit · Core · Paper 3 style · 5 marks

Jade River Toys transfers completed goods from its factory to its warehouse at production cost plus 20%. The production cost of goods completed for the year was $300,000.

  1. (a) Calculate the transfer price of goods completed and the factory profit. [3]
  2. (b) Explain why a manufacturer may transfer goods to its trading account at a price above production cost. [2]
Show answer
  1. (a) Transfer price $360,000; factory profit $60,000
    20% × 300,000 = 60,000 factory profit (M1 A1); 300,000 + 60,000 = $360,000 (A1).
  2. (b) To compare the factory's cost with the price of buying the goods from outside, so the factory's efficiency (and the trading section's) can be judged separately; it can also be used to reward factory managers.
    1 mark compare with market/outside price; 1 mark measure factory performance separately/manager bonus.
Q2Factory profit and unrealised profit · Core · Paper 3 style · 5 marks

Falcon Paints transfers goods to its trading account at production cost plus 20%. Finished goods inventory at the year end, valued at transfer price, was $48,000. The provision for unrealised profit brought forward was $6,500.

  1. (a) Calculate the provision for unrealised profit at the year end. [2]
  2. (b) Calculate the adjustment to the provision for the year and state its effect on profit. [2]
  3. (c) State the value of finished goods inventory in the statement of financial position. [1]
Show answer
  1. (a) $8,000
    48,000 × 20/120 (M1) = $8,000 (A1).
  2. (b) Increase of $1,500, which reduces profit.
    8,000 − 6,500 = 1,500 increase (M1); charged against profit (A1).
  3. (c) $40,000
    48,000 − 8,000 = $40,000 (production cost).
Q3Factory profit and unrealised profit · Core · Paper 3 style · 4 marks

Orchid Soaps, Ipoh, transfers its products from its factory to its shop at production cost plus a mark-up.

  1. (a) Explain what is meant by 'unrealised profit' in a manufacturing business. [2]
  2. (b) Explain why a provision for unrealised profit is needed. [2]
Show answer
  1. (a) The factory profit added to goods that are still in finished goods inventory at the year end; it has not been earned because the goods have not been sold to customers.
    1 mark factory profit/mark-up in closing inventory; 1 mark not yet sold outside the business.
  2. (b) Without it, inventory would be shown above cost and profit would include profit the business has made from 'selling to itself', so profit and assets would be overstated.
    1 mark inventory must be at cost (not above); 1 mark profit/assets would be overstated (realisation/prudence).
Q4Factory profit and unrealised profit · Core · Paper 3 style · 4 marks

Sundarbans Honey processes and bottles honey in its own factory and sells it from its own warehouse.

  1. (a) Define (i) production cost of goods completed and (ii) transfer price. [2]
  2. (b) State where (i) the factory profit and (ii) the provision for unrealised profit are shown in the financial statements. [2]
Show answer
  1. (a) (i) The total factory cost (prime cost plus factory overheads, adjusted for work in progress) of goods finished in the period. (ii) The value at which finished goods are passed from the factory to the trading account (production cost plus factory profit, or market value).
    1 mark each.
  2. (b) (i) Added to the gross profit in the statement of profit or loss (transferred from the manufacturing account). (ii) The change is charged/credited in the statement of profit or loss; the balance is deducted from finished goods inventory in the statement of financial position.
    1 mark each.
Q5Factory profit and unrealised profit · Core · Paper 3 style · 5 marks

Tulip Bakeware transfers goods to its shop at production cost plus 25%. Finished goods at transfer price at the year end were $40,000.

  1. (a) Calculate the provision for unrealised profit. [2]
  2. (b) State how the provision is shown in the statement of financial position. [1]
  3. (c) Name the accounting concept that says inventory should not be valued above cost, and explain it. [2]
Show answer
  1. (a) $8,000
    40,000 × 25/125 (M1) = $8,000 (A1).
  2. (b) Deducted from finished goods inventory (shown at $32,000).
    1 mark.
  3. (c) Prudence: assets and profits should not be overstated, so inventory is shown at the lower of cost and net realisable value.
    1 mark prudence (accept realisation: profit is not recognised until goods are sold); 1 mark explanation.
Q6Factory profit and unrealised profit · Standard · Paper 3 style · 8 marks

Indus Steel Fabricators transfers goods from its factory at production cost plus 20%. For the year: $Revenue 620,000Goods transferred from factory at transfer price 480,000Finished goods at start (at transfer price) 36,000Finished goods at end (at transfer price) 42,000Administration and selling expenses 61,000

  1. (a) Prepare the trading section of the statement of profit or loss. [4]
  2. (b) Calculate the profit for the year of the business as a whole. [4]
Show answer
  1. (a) $ $Revenue 620,000Opening inventory of finished goods 36,000Transfer from manufacturing account 480,000 516,000Closing inventory of finished goods (42,000)Cost of sales 474,000Gross profit 146,000
    B1 opening inventory; B1 transfer 480,000; B1 cost of sales 474,000; B1 gross profit 146,000.
  2. (b) $164,000
    Factory profit = 480,000 × 20/120 = 80,000 (B1); PUP 42,000 × 20/120 = 7,000 and 36,000 × 20/120 = 6,000, increase 1,000 (B1); 146,000 − 61,000 + 80,000 − 1,000 (M1) = $164,000 (A1).
Q7Factory profit and unrealised profit · Standard · Paper 3 style · 6 marks

Andromeda Electronics transfers goods to its trading account at production cost plus 25%. At 31 December 2025, finished goods at transfer price were $62,500. The provision for unrealised profit at 1 January 2025 was $9,800.

  1. (a) Calculate the provision for unrealised profit required at 31 December 2025 and the adjustment for the year. [2]
  2. (b) Prepare the journal entry to record the adjustment. A narrative is required. [2]
  3. (c) Explain which accounting concept requires the provision. [2]
Show answer
  1. (a) Provision $12,500; increase $2,700
    62,500 × 25/125 = 12,500 (M1); 12,500 − 9,800 = increase 2,700 (A1).
  2. (b) Debit $ Credit $Statement of profit or loss 2,700 Provision for unrealised profit 2,700Increase in provision for unrealised profit on finished goods
    B1 correct sides; B1 amount with narrative.
  3. (c) Realisation: the factory profit included in the inventory has not been earned until the goods are sold to an outside customer, so it is removed (also prudence).
    1 mark realisation (or prudence); 1 mark profit not realised until sold outside the business.
Q8Factory profit and unrealised profit · Standard · Paper 3 style · 5 marks

Finished goods held by Galaxy Shoes at the year end are valued at a transfer price of $75,000.

  1. (a) Calculate the provision for unrealised profit if the factory profit is 25% of production cost. [2]
  2. (b) Calculate the provision if the factory profit is 25% of the transfer price. [1]
  3. (c) Explain why the two answers are different. [2]
Show answer
  1. (a) $15,000
    75,000 × 25/125 (M1) = $15,000 (A1).
  2. (b) $18,750
    75,000 × 25% = $18,750.
  3. (c) A 25% margin on transfer price is the same as a 33⅓% mark-up on cost, so more of the transfer price is unrealised profit; in (a) profit is one-fifth of transfer price, in (b) one-quarter.
    1 mark mark-up based on cost v margin based on transfer price; 1 mark fraction 25/125 v 25/100.
Q9Factory profit and unrealised profit · Standard · Paper 3 style · 5 marks

At 31 March 2026, Kalahari Leather had inventories of raw materials $23,400 and work in progress $17,800 (both at cost) and finished goods of $57,600 at transfer price. Goods are transferred at production cost plus 20%.

  1. (a) Calculate the provision for unrealised profit. [2]
  2. (b) Prepare the inventory section of the current assets in the statement of financial position. [3]
Show answer
  1. (a) $9,600
    57,600 × 20/120 (M1) = $9,600 (A1).
  2. (b) $ $Inventories: Raw materials 23,400 Work in progress 17,800 Finished goods 57,600 Less provision for unrealised profit (9,600) 48,000 89,200
    B1 raw materials and WIP; B1 finished goods less provision; B1 total 89,200.
Q10Factory profit and unrealised profit · Standard · Paper 3 style · 5 marks

Highveld Bricks transfers completed goods to its trading account at market value. This year the production cost of goods completed was $360,000 and their market value was $432,000. There was no opening inventory of finished goods; closing finished goods at transfer price were $21,600.

  1. (a) Calculate the mark-up on production cost implied by the market value transfer price. [2]
  2. (b) Calculate the provision for unrealised profit on the closing finished goods. [2]
  3. (c) State the factory profit for the year. [1]
Show answer
  1. (a) 20%
    (432,000 − 360,000) ÷ 360,000 × 100 (M1) = 20% (A1).
  2. (b) $3,600
    21,600 × 20/120 (M1) = $3,600 (A1).
  3. (c) $72,000
    432,000 − 360,000 = $72,000.
Q11Factory profit and unrealised profit · Standard · Paper 3 style · 6 marks

Anchor Pumps transfers goods at production cost plus 25%. For the year the production cost of goods completed was $238,000. Finished goods at transfer price were $30,000 at the start and $35,000 at the end of the year.

  1. (a) Prepare the final section of the manufacturing account, from the production cost of goods completed to the transfer to the trading account. [3]
  2. (b) Calculate the provision for unrealised profit at the start and end of the year and the adjustment. [3]
Show answer
  1. (a) $Production cost of goods completed 238,000Factory profit (25%) 59,500Transfer to trading account at transfer price 297,500
    B1 production cost; B1 factory profit 59,500; B1 transfer 297,500.
  2. (b) Start $6,000; end $7,000; increase $1,000 (reduces profit)
    30,000 × 25/125 = 6,000 (B1); 35,000 × 25/125 = 7,000 (B1); increase 1,000 charged to profit (B1).
Q12Factory profit and unrealised profit · Standard · Paper 3 style · 6 marks

The draft profit of Saffron Rugs, Multan, is $184,000, which includes factory profit. Goods are transferred at production cost plus 15%. Closing finished goods at transfer price are $34,500. The provision for unrealised profit at the start of the year was $2,700, but no adjustment has been made for this year.

  1. (a) Calculate the provision for unrealised profit required at the year end. [2]
  2. (b) Calculate the corrected profit for the year. [2]
  3. (c) State the effect of the omission on the statement of financial position. [2]
Show answer
  1. (a) $4,500
    34,500 × 15/115 (M1) = $4,500 (A1).
  2. (b) $182,200
    Increase in provision 4,500 − 2,700 = 1,800 (M1); 184,000 − 1,800 = $182,200 (A1).
  3. (c) Inventory (current assets) overstated by $1,800 and capital/retained profit overstated by the same amount.
    1 mark inventory overstated; 1 mark capital overstated (by 1,800).
Q13Factory profit and unrealised profit · Standard · Paper 3 style · 6 marks

Crimson Textiles, Faisalabad, transfers goods from its factory to its trading account at production cost plus a factory profit.

  1. (a) State the double entry for: (i) the factory profit of $64,000, (ii) the increase of $2,300 in the provision for unrealised profit. [4]
  2. (b) Explain why the factory profit does not increase the cash of the business. [2]
Show answer
  1. (a) (i) Debit manufacturing account $64,000; credit statement of profit or loss (factory profit) $64,000. (ii) Debit statement of profit or loss $2,300; credit provision for unrealised profit account $2,300.
    1 mark each side of each entry.
  2. (b) It arises from an internal transfer from the factory to the trading section; no sale to an outside customer has taken place, so no cash is received.
    1 mark internal/book transfer; 1 mark no outside sale/no cash.
Q14Factory profit and unrealised profit · Standard · Paper 3 style · 6 marks

Information for Sapphire Glass Ltd for the year: gross profit $212,000; factory profit $88,000; administration expenses $74,500; selling and distribution expenses $52,300; provision for unrealised profit at start $14,000 and at end $16,500.

  1. (a) Prepare a statement showing the profit for the year of the business as a whole. [5]
  2. (b) Explain why the factory profit is added to the gross profit. [1]
Show answer
  1. (a) $ $Gross profit 212,000Factory profit 88,000Less increase in provision for unrealised profit (2,500) 85,500 297,500Administration expenses 74,500Selling and distribution expenses 52,300 126,800Profit for the year 170,700
    B1 gross profit; B1 factory profit added; B1 increase 2,500 deducted; B1 expenses; B1 profit 170,700.
  2. (b) Because the transfer price included in cost of sales reduced gross profit by the factory profit, it must be added back to show the profit of the whole business.
    1 mark.
Q15Factory profit and unrealised profit · Standard · Paper 3 style · 8 marks

Garnet Cosmetics transfers goods at production cost plus 20%. For the year: revenue $940,000; goods transferred from factory $720,000 (at transfer price); finished goods at transfer price $72,000 at the start and $84,000 at the end.

  1. (a) Calculate the cost of sales and the gross profit. [3]
  2. (b) Calculate the factory profit for the year. [2]
  3. (c) Calculate the adjustment to the provision for unrealised profit. [2]
  4. (d) State the value of finished goods in the statement of financial position. [1]
Show answer
  1. (a) Cost of sales $708,000; gross profit $232,000
    72,000 + 720,000 − 84,000 = 708,000 (M1 A1); 940,000 − 708,000 = 232,000 (A1).
  2. (b) $120,000
    720,000 × 20/120 (M1) = $120,000 (A1).
  3. (c) Increase $2,000
    Start 72,000 × 20/120 = 12,000; end 84,000 × 20/120 = 14,000 (M1); increase $2,000 (A1).
  4. (d) $70,000
    84,000 − 14,000.
Q16Factory profit and unrealised profit · Standard · Paper 3 style · 5 marks

Horizon Lamps makes most of its products but also buys some lamps from other manufacturers for resale. At the year end it held manufactured lamps at a transfer price of $45,600 (production cost plus 20%) and bought-in lamps at a cost of $8,400.

  1. (a) Calculate the provision for unrealised profit required. [2]
  2. (b) Explain why no provision is made on the goods bought from other businesses. [2]
  3. (c) Calculate the total value of finished goods in the statement of financial position. [1]
Show answer
  1. (a) $7,600
    Only manufactured goods: 45,600 × 20/120 (M1) = $7,600 (A1).
  2. (b) They were bought at cost from outside suppliers and recorded at their purchase price, so they contain no internal factory profit.
    1 mark recorded at cost; 1 mark no factory profit included.
  3. (c) $46,400
    45,600 − 7,600 + 8,400 = $46,400.
Q17Factory profit and unrealised profit · Challenge · Paper 3 style · 6 marks

Vertex Kitchenware used a mark-up of 20% on production cost last year, but reduced it to 10% this year. Finished goods at transfer price were $54,000 at the start of the year (transferred at the old rate) and $66,000 at the end of the year (transferred at the new rate).

  1. (a) Calculate the provision for unrealised profit at the start and at the end of the year. [3]
  2. (b) State the adjustment needed and its effect on profit. [2]
  3. (c) Calculate the value of finished goods inventory in the statement of financial position at the end of the year. [1]
Show answer
  1. (a) Start $9,000; end $6,000
    54,000 × 20/120 = 9,000 (M1 A1); 66,000 × 10/110 = 6,000 (A1).
  2. (b) Decrease of $3,000 in the provision; it is added to (increases) profit.
    9,000 − 6,000 = 3,000 decrease (M1); credited to statement of profit or loss, increasing profit (A1).
  3. (c) $60,000
    66,000 − 6,000 = $60,000.
Q18Factory profit and unrealised profit · Challenge · Paper 3 style · 8 marks

Mosaic Tiles transfers goods from its factory at production cost plus 15% (the same rate as last year). For the year: production cost of goods completed $500,000; revenue $820,000; finished goods at transfer price $46,000 at the start and $69,000 at the end; administration and selling expenses $110,000.

  1. (a) Calculate the profit for the year of the business as a whole, using transfer prices. [4]
  2. (b) Calculate the profit if all goods were valued at production cost, with no factory profit. [2]
  3. (c) Explain why the two profit figures are the same. [2]
Show answer
  1. (a) $230,000
    Cost of sales 46,000 + 575,000 − 69,000 = 552,000; gross profit 268,000 (M1); factory profit 15% × 500,000 = 75,000 (B1); PUP 9,000 − 6,000 = 3,000 increase (B1); 268,000 − 110,000 + 75,000 − 3,000 = $230,000 (A1).
  2. (b) $230,000
    Cost of sales at cost 40,000 + 500,000 − 60,000 = 480,000 (M1); 820,000 − 480,000 − 110,000 = $230,000 (A1).
  3. (c) Factory profit is only an internal transfer; the provision removes the part still in unsold inventory, so the only profit recognised is that realised by selling to customers.
    1 mark internal transfer/not earned from outside; 1 mark PUP removes unrealised element so totals agree.
Q19Factory profit and unrealised profit · Challenge · Paper 3 style · 8 marks

The factory manager of Nile Valley Juices receives a bonus of 5% of factory profit. Goods produced this year cost $450,000 and would have cost $540,000 to buy from another manufacturer. The manager proposes that goods should be transferred at production cost plus 30% instead of at market price.

  1. (a) Calculate the factory profit (i) using the market price, (ii) using the proposed 30% mark-up. [2]
  2. (b) Explain why a market-price transfer is a better measure of the factory's performance. [2]
  3. (c) Advise the directors which basis to use for the factory manager's bonus. Justify your answer. [4]
Show answer
  1. (a) (i) $90,000 (ii) $135,000
    (i) 540,000 − 450,000 = 90,000; (ii) 30% × 450,000 = 135,000. 1 mark each.
  2. (b) It shows what the business would have paid an outside supplier, so the factory profit shows how much the factory saves by making the goods; a fixed mark-up gives a profit even if the factory is inefficient.
    1 mark comparison with buying in; 1 mark mark-up hides inefficiency/rewards cost increases.
  3. (c) Market price: the 30% mark-up would raise the bonus by $2,250 (5% of $45,000) without any improvement, and rises automatically if costs rise; market price rewards real cost savings, though market prices can be hard to find and may change.
    For market price: fair, motivates cost control, comparable with outside. Against: market price may be hard to obtain/volatile; manager cannot control it. For mark-up: simple, certain; but rewards higher costs. 1 mark per point (max 3), 1 mark decision.
Q20Factory profit and unrealised profit · Challenge · Paper 3 style · 5 marks

Kestrel Boats transfers goods to its showroom at production cost plus 30%. In the statement of financial position, finished goods are shown at their production cost of $52,000.

  1. (a) Calculate the value of the closing finished goods at transfer price. [2]
  2. (b) Calculate the provision for unrealised profit at the end of the year. [1]
  3. (c) The provision at the start of the year was $17,100. State the adjustment and its effect on profit. [2]
Show answer
  1. (a) $67,600
    52,000 × 130% (M1) = $67,600 (A1).
  2. (b) $15,600
    67,600 − 52,000 = $15,600 (or 67,600 × 30/130).
  3. (c) Decrease of $1,500, which increases profit.
    17,100 − 15,600 = 1,500 (M1); decrease credited, increasing profit (A1).
Q21Factory profit and unrealised profit · Challenge · Paper 3 style · 6 marks

Nordic Outdoor makes tents (product A) and sleeping bags (product B). Tents are transferred at production cost plus 20% and sleeping bags at production cost plus 30%. At the year end finished goods at transfer price were tents $24,000 and sleeping bags $39,000. The provision for unrealised profit at the start of the year was $11,200.

  1. (a) Calculate the provision for unrealised profit at the year end. [3]
  2. (b) Calculate the adjustment for the year. [1]
  3. (c) State the value of finished goods in the statement of financial position. [1]
  4. (d) State the effect of the adjustment on the profit for the year. [1]
Show answer
  1. (a) $13,000
    A: 24,000 × 20/120 = 4,000 (M1); B: 39,000 × 30/130 = 9,000 (M1); total $13,000 (A1).
  2. (b) Increase $1,800
    13,000 − 11,200 = 1,800.
  3. (c) $50,000
    63,000 − 13,000 = $50,000.
  4. (d) Profit is reduced by $1,800.
    1 mark.
Q22Factory profit and unrealised profit · Challenge · Paper 3 style · 6 marks

Cobalt Kettles makes 18,000 kettles a year at a production cost of $27.50 each and transfers them to its trading account at the price an outside supplier would charge, $33 each. At the year end 2,400 kettles were in finished goods inventory. The provision for unrealised profit at the start of the year was $10,450.

  1. (a) Calculate the mark-up on production cost. [2]
  2. (b) Calculate the factory profit for the year. [1]
  3. (c) Calculate the provision for unrealised profit at the year end. [2]
  4. (d) Calculate the adjustment to the provision for the year. [1]
Show answer
  1. (a) 20%
    (33 − 27.50) ÷ 27.50 × 100 (M1) = 20% (A1).
  2. (b) $99,000
    18,000 × (33 − 27.50) = $99,000.
  3. (c) $13,200
    2,400 × 33 = 79,200 at transfer price (M1); 79,200 × 20/120 = $13,200 (A1).
  4. (d) Increase $2,750
    13,200 − 10,450 = 2,750.
Q23Factory profit and unrealised profit · Challenge · Paper 3 style · 8 marks

Ember Stoves transfers completed goods from its factory to its trading account at production cost plus a fixed mark-up. At the year end, finished goods inventory at transfer price was $57,500; in the statement of financial position it is shown at production cost of $50,000. The factory profit for the year was $72,000. The provision for unrealised profit at the start of the year was $6,300. The draft profit for the year of the business as a whole, before any adjustment to the provision for unrealised profit, was $163,400.

  1. (a) Calculate the mark-up on production cost used by the business. [2]
  2. (b) Calculate the production cost of goods completed and the transfer price of goods completed for the year. [2]
  3. (c) Calculate the adjustment to the provision for unrealised profit and the corrected profit for the year. [2]
  4. (d) The owner says, 'Raising the mark-up to 30% would increase our profit.' Explain whether he is correct. [2]
Show answer
  1. (a) 15%
    Provision = 57,500 − 50,000 = 7,500 (M1); 7,500 ÷ 50,000 × 100 = 15% (A1).
  2. (b) Production cost $480,000; transfer price $552,000
    72,000 ÷ 15% = 480,000 (B1); 480,000 + 72,000 = 552,000 (B1).
  3. (c) Increase of $1,200; corrected profit $162,200
    7,500 − 6,300 = 1,200 increase (M1); 163,400 − 1,200 = $162,200 (A1).
  4. (d) He is not correct: a higher mark-up raises factory profit, but cost of sales at transfer price rises by the same amount on goods sold and the provision on unsold goods rises, so the profit of the business as a whole is unchanged.
    1 mark factory profit is an internal transfer, offset by higher cost of sales in the trading account; 1 mark the provision for unrealised profit removes the extra profit in unsold inventory, so overall profit does not change.
Q24Manufacturing account · Core · Paper 3 style · 6 marks

Stepwell Footwear, Kasur, makes leather shoes.

  1. (a) Classify each cost as direct materials, direct labour, direct expenses, factory overheads or administration/selling expenses: (i) leather used in shoes, (ii) wages of machine stitchers, (iii) royalty of $0.50 per pair paid to a designer, (iv) factory supervisor's salary, (v) depreciation of delivery vans, (vi) factory electricity. [6]
Show answer
  1. (a) (i) direct materials (ii) direct labour (iii) direct expenses (iv) factory overheads (v) selling and distribution expense (not in the manufacturing account) (vi) factory overheads
    1 mark each.
Q25Manufacturing account · Core · Paper 3 style · 5 marks

Copperline Cables provides: raw materials inventory at the start $12,600 and at the end $14,300; purchases of raw materials $88,400; carriage inwards $1,500; returns of raw materials to suppliers $2,200; direct labour $67,000; direct expenses (hire of special moulds) $3,200; factory rent $18,000.

  1. (a) Calculate the cost of raw materials consumed. [3]
  2. (b) Calculate the prime cost. [2]
Show answer
  1. (a) $86,000
    12,600 + 88,400 + 1,500 carriage inwards − 2,200 returns (M1 M1) − 14,300 = $86,000 (A1).
  2. (b) $156,200
    86,000 + direct labour 67,000 + direct expenses 3,200 (M1) = $156,200 (A1).
Q26Manufacturing account · Standard · Paper 3 style · 8 marks

Lotus Ceramics, Jingdezhen, provides the following for the year ended 31 December 2025: $Inventory of raw materials 1 January 2025 18,400Inventory of raw materials 31 December 2025 21,000Purchases of raw materials 142,600Carriage inwards on raw materials 2,300Returns outwards 1,900Direct labour 96,500Royalties 4,600Indirect factory wages 31,200Factory power 14,800Depreciation of factory machinery 12,500Work in progress 1 January 2025 9,700Work in progress 31 December 2025 11,200

  1. (a) Prepare the manufacturing account for the year ended 31 December 2025. [8]
Show answer
  1. (a) Manufacturing account for the year ended 31 December 2025 $ $Inventory of raw materials 1 January 2025 18,400Purchases of raw materials 142,600Carriage inwards 2,300Less returns outwards (1,900) 161,400Less inventory of raw materials 31 December 2025 (21,000)Cost of raw materials consumed 140,400Direct labour 96,500Royalties 4,600Prime cost 241,500Factory overheads: Indirect wages 31,200 Factory power 14,800 Depreciation of machinery 12,500 58,500 300,000Add work in progress 1 January 2025 9,700Less work in progress 31 December 2025 (11,200)Production cost of goods completed 298,500
    B1 raw materials consumed 140,400 (carriage in added, returns deducted); B1 direct labour; B1 royalties; B1 prime cost 241,500; B1 factory overheads 58,500; B1 WIP adjustment; B1 production cost 298,500; B1 headings/title.
Q27Manufacturing account · Standard · Paper 3 style · 6 marks

Saba Garments, Karachi, provides the following for the year: RsRaw materials consumed 640,000Direct wages 410,000Rent of premises 120,000Electricity 80,000Factory supervisor's salary 96,000Depreciation of factory machinery 54,000Work in progress at start 32,000Work in progress at end 41,000The factory occupies 75% of the premises and uses 60% of the electricity. The rest relates to the office.

  1. (a) Calculate the total factory overheads. [3]
  2. (b) Calculate the production cost of goods completed. [3]
Show answer
  1. (a) Rs 288,000
    Rent 75% × 120,000 = 90,000; electricity 60% × 80,000 = 48,000 (M1 M1); + 96,000 + 54,000 = Rs 288,000 (A1).
  2. (b) Rs 1,329,000
    Prime cost 640,000 + 410,000 = 1,050,000 (M1); + 288,000 + 32,000 − 41,000 (M1) = Rs 1,329,000 (A1).
Q28Manufacturing account · Standard · Paper 3 style · 5 marks

Sahel Furniture provides the following for the year: prime cost $268,000; direct labour $121,000; direct expenses $6,500; work in progress at the start $15,400 and at the end $22,400; production cost of goods completed $405,000.

  1. (a) Calculate the factory overheads. [2]
  2. (b) Calculate the cost of raw materials consumed. [2]
  3. (c) Explain what is meant by 'work in progress'. [1]
Show answer
  1. (a) $144,000
    Production cost before WIP adjustment = 405,000 − 15,400 + 22,400 = 412,000 (M1); 412,000 − 268,000 = $144,000 (A1).
  2. (b) $140,500
    268,000 − 121,000 − 6,500 (M1) = $140,500 (A1).
  3. (c) Goods that have been started but are not yet finished at the end of the period.
    1 mark.
Q29Manufacturing account · Challenge · Paper 3 style · 8 marks

Orbit Bicycles makes 12,000 gear units a year. The production cost of goods completed is $504,000, which includes $96,000 of fixed factory overheads that would still be paid if the gear units were bought in. An outside supplier offers to sell identical units for $39 each.

  1. (a) Calculate the production cost per unit. [2]
  2. (b) Calculate the avoidable cost per unit if the factory stopped making the part. [2]
  3. (c) Advise the directors whether to buy the part from the supplier at $39 instead of making it. Justify your answer. [4]
Show answer
  1. (a) $42
    504,000 ÷ 12,000 (M1) = $42 (A1).
  2. (b) $34
    504,000 − unavoidable fixed overheads 96,000 = 408,000 (M1); ÷ 12,000 = $34 (A1).
  3. (c) Keep making it: buying at $39 costs $5 a unit more than the $34 that would be saved, i.e. $60,000 a year worse, even though $39 is below the full cost of $42.
    For making: avoidable cost 34 < 39, saves 60,000 a year; control of quality and supply; keeps jobs. For buying: factory space could be used for something more profitable; supplier may be more reliable or innovative. 1 mark per point (max 3), 1 mark decision.
Q30Manufacturing account · Challenge · Paper 3 style · 5 marks

Polar Glassworks has 2,000 finished vases in inventory. Each cost $25 to produce. 300 of them are chipped and can be sold for only $26 each after $4 per vase is spent on repairs and packing; the rest sell for $40 each.

  1. (a) Calculate the value of the finished goods inventory at the year end. [3]
  2. (b) Explain why selling and distribution costs are not included in the cost of manufactured inventory. [2]
Show answer
  1. (a) $49,100
    Undamaged 1,700 × $25 = 42,500 (M1); damaged at lower of cost and net realisable value 300 × $22 = 6,600 (M1); total $49,100 (A1).
  2. (b) Inventory cost includes only the costs of bringing goods to their present location and condition (production costs); selling costs are incurred when goods are sold, so they are expenses of the period in which the sale is made.
    1 mark only production costs included (IAS 2); 1 mark selling costs relate to the sale/period expense.

Similar questions

Questions that test the same subtopic in different years, grouped so you can work on one skill at a time.

References only: find each question in its paper (official link where available, otherwise through your school).

Factory profit and unrealised profit 4 questions · 4/9 sessions
Manufacturing account 3 questions · 3/9 sessions

Subtopics

Our analysis of how often each subtopic was examined and how many marks it carried, 2022 to May/June 2026.

SubtopicMarks indexedSessions
Factory profit and unrealised profit 604/9
Manufacturing account 183/9

← All Accounting topics