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 this down step-by-step.
Step 1: Understand the Components
-
Prime Cost: This is the total of direct costs associated with manufacturing, which includes direct materials and direct labor. Here, it is given as N999,000.
-
Manufacturing Overhead: This includes all indirect costs related to manufacturing, such as utilities, rent, and depreciation. The total manufacturing overhead is N132,000, which includes N5,000 of rent that has been paid in advance.
-
Closing Work in Progress: This is the value of unfinished goods at the end of the accounting period, which is N75,000.
-
Finished Goods Transferred to Trading Account: This is the total value of goods that have been completed and are ready for sale, which is N1,116,000.
Step 2: Calculate Total Manufacturing Costs
To find the total manufacturing costs for the period, we need to add the prime cost and the manufacturing overhead. However, we must first adjust the manufacturing overhead to exclude the prepaid rent, as it does not pertain to the current period's manufacturing costs.
Adjusted Manufacturing Overhead:
- Total Manufacturing Overhead: N132,000
- Less: Prepaid Rent: N5,000
- Adjusted Manufacturing Overhead: N132,000 - N5,000 = N127,000
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 following formula:
[
\text{Total Manufacturing Costs} = \text{Opening WIP} + \text{Total Manufacturing Costs} - \text{Closing WIP}
]
Rearranging this formula to find the opening WIP gives us:
[
\text{Opening WIP} = \text{Total Manufacturing Costs} - \text{Closing WIP}
]
Step 4: Substitute the Values
Now we can substitute the values we have calculated:
[
\text{Opening WIP} = N1,126,000 - N75,000
]
[
\text{Opening WIP} = N1,051,000
]
Step 5: Calculate the Opening WIP
Now we need to find the opening WIP. However, we need to consider that the finished goods transferred to the trading account also need to be accounted for. The finished goods are derived from the total manufacturing costs minus the closing WIP.
Using the formula:
[
\text{Finished Goods} = \text{Total Manufacturing Costs} - \text{Closing WIP}
]
We can rearrange this to find the opening WIP:
[
\text{Opening WIP} = \text{Total Manufacturing Costs} - \text{Finished Goods} + \text{Closing WIP}
]
Substituting the values:
[
\text{Opening WIP} = N1,126,000 - N1,116,000 + N75,000
]
[
\text{Opening WIP} = N1,126,000 - N1,116,000 + N75,000 = N85,000
]
Conclusion: Correct Answer
Thus, the opening work in progress for the period is
N85,000. Therefore, the correct option is
A. N85,000.
Explanation of Other Options
- B. N80,000: This value does not account for the correct adjustments made to the manufacturing overhead and does not align with the calculations.
- C. N70,000: This option is incorrect as it underestimates the opening WIP based on the total manufacturing costs and closing WIP.
- D. N65,000: This option is also incorrect as it significantly underestimates the opening WIP.
Revision Summary
- Prime Cost and Manufacturing Overhead are key components in calculating total manufacturing costs.
- Adjust manufacturing overhead for any prepaid expenses to reflect current period costs accurately.
- 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.