Question 1 Manufacturing Cost Schedule and Income Statement (10marks).

This question relates to learning material and objectives from Online Topics 1, 2 and 3.

As part of its expansion into foreign markets Mercury Australasia Ltd has recently purchased well

known garden implement manufacturer ‘Winner Mowers’. Mercury believe that with the rapid growth

in the Chinese middle class famous brands like the Australian ‘Winner’ lawn mower will have a large

market in China when marketed through Mercury’s extensive Chinese distribution channels.

As part of the due diligence around the purchase of ‘Winner Mowers’ you have been asked to prepare

an up to date Cost of Manufacturing Schedule and Income Statement. Mr Lorne Greene, the

management accountant at ‘Winner’, has provided you with the following data which relates to the

2016 financial year which has just completed. The firm manufactures the body and mechanics of the

mowers and installs Briggs & Stratton motors to drive them.

On June 30th, 2016 the following balances were recorded for ‘Winner Mowers’ inventory accounts

(with comparative 1/7/2015 Opening Balance figures):

Inventory Account: July 1, 2015 Jun 30, 2016

Work in Process (WIP) Inventory: $ Opening       $ Closing

Raw Materials                                    215,000          320,000

Briggs & Stratton Motors                  364,000          387,000

 

Direct Labour                                       124,000        136,000

Manufacturing Overhead                    35,000         36,500

Raw Material Inventory                       962,000          813,000

Briggs & Stratton Motors Inventory  465,000           127,000

Finished Goods Inventory                   1,871,000       1,927,000

Other balances recorded in the accounts of ‘Winner Mowers’ included the following:

Account: $

Sales Revenue 12,688,000

Head Office Salaries and On-Costs 1,037,000

Factory Management Salaries 275,000

Factory Wages (Direct) 2,126,000

Raw Material & Parts Purchases 1,688,000

Briggs & Stratton Motors 2,751,000

Interest & Financing Charges 545,000

Office Consumable Expenses 123,000

Miscellaneous Factory Expenses 93,000

Accounting & Audit costs 260,000

Office Heat Light & Power Costs 42,000

Factory Heat Light & Power Costs 1,624,000

Inwards Freight 365,000

Outwards Freight 863,000

Sales Department Expenses (including commissions) 1,713,000

Depreciation of Manufacturing Plant 288,000

Depreciation of Office Equipment 22,000

Other Factory Overhead & Maintenance 421,000

The company is incorporated in Australia and pays tax at the Australian corporate rate of 30%.

Because the Briggs & Stratton motors installed in the Winner lawnmowers are such a significant line

item cost, the company likes to account for this cost separately from other materials in the

Manufacturing Schedule