To determine the production cost, we need to understand the components involved in calculating it. The production cost typically includes the costs incurred during the manufacturing process, which can be broken down into several components. Let's analyze the information provided step-by-step.
Given Data:
- Prime Cost: N220,000
- Factory Cost: N32,000
- Work in Progress (WIP) at Beginning: N25,000
- Work in Progress (WIP) at Close: N19,000
- Administrative Expenses: N21,000
Step 1: Understanding Prime Cost
Prime cost is the total of direct materials and direct labor costs incurred in the production of goods. In this case, the prime cost is given as N220,000.
Step 2: Understanding Factory Cost
Factory cost includes all costs incurred in the manufacturing process, which typically consists of:
- Prime Cost
- Manufacturing Overheads (indirect costs associated with production)
In this case, the factory cost is given as N32,000. However, it is important to note that factory cost is not directly added to prime cost when calculating production cost.
Step 3: Calculate Total Production Cost
To calculate the total production cost, we need to consider the work in progress at the beginning and at the end of the period. The formula for calculating production cost is:
[
\text{Production Cost} = \text{Prime Cost} + \text{Factory Cost} + \text{WIP (Beginning)} - \text{WIP (Closing)}
]
Step 4: Plugging in the Values
Now, we can substitute the values into the formula:
[
\text{Production Cost} = N220,000 + N32,000 + N25,000 - N19,000
]
Step 5: Performing the Calculation
- First, add the prime cost and factory cost:
[
N220,000 + N32,000 = N252,000
]
- Next, add the work in progress at the beginning:
[
N252,000 + N25,000 = N277,000
]
- Finally, subtract the work in progress at the close:
[
N277,000 - N19,000 = N258,000
]
Conclusion
Thus, the total production cost is
N258,000.
Answer: C. N258,000
Explanation of Other Options:
- Option A: N296,000 - This option is incorrect because it does not account for the subtraction of closing work in progress, leading to an inflated total.
- Option B: N277,000 - This option is incorrect as it fails to subtract the closing work in progress, which is essential for accurately determining the production cost.
- Option D: N246,000 - This option is also incorrect as it does not correctly add the components of prime cost, factory cost, and beginning work in progress.
Revision Summary:
- Production Cost Formula: Production Cost = Prime Cost + Factory Cost + WIP (Beginning) - WIP (Closing).
- Key Components: Prime cost includes direct materials and labor; factory cost includes manufacturing overheads.
- Work in Progress: Always adjust for beginning and closing WIP to accurately reflect production costs.
- Final Calculation: Ensure to follow the order of operations to avoid mistakes in the final total.
This thorough breakdown should help you understand how to calculate production costs effectively and prepare for similar questions in your financial accounting studies.