To determine the production cost, we need to understand the components involved in calculating it. The production cost typically includes all costs incurred in the manufacturing process, which can be broken down into direct costs (like prime costs) and indirect costs (like factory costs).
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-by-Step Calculation:
- Understanding Prime Cost:
-
Prime cost includes direct materials and direct labor costs. In this case, it is given as N220,000.
-
Understanding Factory Cost:
-
Factory cost typically includes all manufacturing costs incurred during the production process, which can include both prime costs and manufacturing overheads. Here, it is given as N32,000.
-
Calculating Total Manufacturing Costs:
- Total manufacturing costs can be calculated as:
[
\text{Total Manufacturing Costs} = \text{Prime Cost} + \text{Factory Cost}
]
-
Substituting the values:
[
\text{Total Manufacturing Costs} = N220,000 + N32,000 = N252,000
]
-
Adjusting for Work in Progress:
- To find the total production cost, we need to adjust for the work in progress at the beginning and end of the period. The formula for calculating the total production cost is:
[
\text{Production Cost} = \text{Total Manufacturing Costs} + \text{WIP at Beginning} - \text{WIP at Close}
]
- Substituting the values:
[
\text{Production Cost} = N252,000 + N25,000 - N19,000
]
- Performing the calculation:
[
\text{Production Cost} = N252,000 + N25,000 - N19,000 = N252,000 + N6,000 = N258,000
]
Final Answer:
The production cost is
N258,000. Therefore, the correct option is
C.
Explanation of Other Options:
-
Option A (N296,000): This option is incorrect because it does not account for the adjustments made for work in progress. It seems to add unnecessary costs or miscalculate the total.
-
Option B (N277,000): This option is also incorrect. It appears to miscalculate the adjustments for work in progress, possibly by not subtracting the closing WIP correctly.
-
Option D (N246,000): This option is incorrect as well. It likely results from an error in adding or subtracting the WIP amounts or miscalculating the total manufacturing costs.
Common Pitfalls:
- Ignoring Work in Progress: A common mistake is to forget to adjust for the work in progress at the beginning and end of the period, which can lead to significant miscalculations.
- Misunderstanding Factory Costs: Confusing factory costs with total costs can lead to incorrect calculations. Always ensure you know what is included in each cost category.
Revision Summary:
- Production cost includes prime costs and factory costs adjusted for work in progress.
- Always adjust for beginning and closing work in progress to get the accurate production cost.
- The formula for production cost is:
[
\text{Production Cost} = \text{Total Manufacturing Costs} + \text{WIP at Beginning} - \text{WIP at Close}
]
- The correct answer for the given data is N258,000 (Option C).