To determine the opening work in progress (WIP) for Amusa Company Limited, we need to analyze the information provided and apply the relevant accounting principles. Let's break down the problem step-by-step.
Given Information:
- Prime Cost: N999,000
- Manufacturing Overhead: N132,000
- Closing Work in Progress: N75,000
- Finished Goods Transferred to Trading Account: N1,116,000
- Rents Paid in Advance (included in Manufacturing Overhead): N5,000
Step 1: Understand the Components
- Prime Cost includes direct materials and direct labor costs incurred in the production of goods.
- Manufacturing Overhead includes all indirect costs associated with manufacturing, such as utilities, rent, and depreciation. In this case, it includes N5,000 of rent that has been paid in advance, which is not an expense for the current period and should be excluded from the overhead calculation for this period.
- Closing Work in Progress represents the value of unfinished goods at the end of the accounting period.
Step 2: Calculate Total Manufacturing Costs
To find the total manufacturing costs for the period, we need to adjust the manufacturing overhead by removing the prepaid rent:
[
\text{Adjusted Manufacturing Overhead} = \text{Manufacturing Overhead} - \text{Prepaid Rent}
]
[
\text{Adjusted Manufacturing Overhead} = N132,000 - N5,000 = N127,000
]
Now, we can calculate the total manufacturing costs:
[
\text{Total Manufacturing Costs} = \text{Prime Cost} + \text{Adjusted Manufacturing Overhead}
]
[
\text{Total Manufacturing Costs} = N999,000 + N127,000 = N1,126,000
]
Step 3: Relate Total Manufacturing Costs to WIP
The relationship between total manufacturing costs, opening WIP, closing WIP, and finished goods is given by the formula:
[
\text{Total Manufacturing Costs} = \text{Opening WIP} + \text{Total Manufacturing Costs Incurred} - \text{Closing WIP}
]
Rearranging this formula to find the opening WIP gives us:
[
\text{Opening WIP} = \text{Total Manufacturing Costs} - \text{Total Manufacturing Costs Incurred} + \text{Closing WIP}
]
Step 4: Substitute Known Values
We know that the finished goods transferred to the trading account (N1,116,000) represents the total manufacturing costs incurred during the period. Therefore, we can substitute the values into the formula:
[
\text{Opening WIP} = N1,126,000 - N1,116,000 + N75,000
]
[
\text{Opening WIP} = N1,126,000 - N1,116,000 + N75,000
]
[
\text{Opening WIP} = N10,000 + N75,000
]
[
\text{Opening WIP} = N85,000
]
Conclusion
The opening work in progress for the period is
N85,000.
Explanation of Other Options:
- Option A (N85,000): This is the correct answer.
- Option B (N80,000): This option is incorrect because it does not account for the correct calculation of total manufacturing costs and the adjustments made for prepaid rent.
- Option C (N70,000): This option is also incorrect as it underestimates the opening WIP by not properly considering the total manufacturing costs incurred.
- Option D (N65,000): This option is incorrect as it significantly underestimates the opening WIP, failing to account for the total manufacturing costs and the closing WIP.
Revision Summary:
- Understand the components of prime cost and manufacturing overhead.
- Adjust manufacturing overhead for any prepaid expenses.
- Use the relationship between total manufacturing costs, opening WIP, closing WIP, and finished goods to find the opening WIP.
- The correct opening WIP for Amusa Company Limited is N85,000.