The following information is provided for Amusa Company Ltd a manufacturer: Prime cost - N999,000, Manufacturing overhead N132,000, Closing work in progress N75,000, Value of finished goods transferred to the Trading Account —
N1,116,000, If included in the manufacturing overhead were rents of N5,000 paid in advance, what is the opening work in progress for the period?
N1,116,000, If included in the manufacturing overhead were rents of N5,000 paid in advance, what is the opening work in progress for the period?
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Correct Answer: Option D
Explanation:
To find the Opening Work-in-Progress (WIP), we need to use the formula for the Cost of Goods Manufactured (COGM):
COGM Formula:
\[
\text{COGM} = \text{Prime Cost} + \text{Manufacturing Overhead} + \text{Opening WIP} - \text{Closing WIP}
\]
You're told:
- COGM (Finished goods transferred to Trading Account) = ₦1,116,000
- Prime Cost = ₦999,000
- Manufacturing Overhead = ₦132,000
- Rent Prepaid (included in overhead) = ₦5,000
- Closing WIP = ₦75,000
Since ₦5,000 of the overhead was prepaid rent, it's not part of this period's cost, so we need to subtract it:
\[
\text{Adjusted Overhead} = ₦132,000 - ₦5,000 = ₦127,000
\]
Now plug values into the formula and solve for Opening WIP:
\[
1,116,000 = 999,000 + 127,000 + \text{Opening WIP} - 75,000
\]
\[
1,116,000 = 1,126,000 + \text{Opening WIP} - 75,000
\]
\[
1,116,000 = 1,051,000 + \text{Opening WIP}
\]
\[
\text{Opening WIP} = 1,116,000 - 1,051,000 = ₦65,000
\]
To find the Opening Work-in-Progress (WIP), we need to use the formula for the Cost of Goods Manufactured (COGM):
COGM Formula:
\[
\text{COGM} = \text{Prime Cost} + \text{Manufacturing Overhead} + \text{Opening WIP} - \text{Closing WIP}
\]
You're told:
- COGM (Finished goods transferred to Trading Account) = ₦1,116,000
- Prime Cost = ₦999,000
- Manufacturing Overhead = ₦132,000
- Rent Prepaid (included in overhead) = ₦5,000
- Closing WIP = ₦75,000
Since ₦5,000 of the overhead was prepaid rent, it's not part of this period's cost, so we need to subtract it:
\[
\text{Adjusted Overhead} = ₦132,000 - ₦5,000 = ₦127,000
\]
Now plug values into the formula and solve for Opening WIP:
\[
1,116,000 = 999,000 + 127,000 + \text{Opening WIP} - 75,000
\]
\[
1,116,000 = 1,126,000 + \text{Opening WIP} - 75,000
\]
\[
1,116,000 = 1,051,000 + \text{Opening WIP}
\]
\[
\text{Opening WIP} = 1,116,000 - 1,051,000 = ₦65,000
\]