IGCSE Accounting Paper-2: Specimen Questions with Answers 163 - 166 of 189

Passage

Ankita is a manufacturer. Her financial year ends on 31st March. She sells her output at 30% mark up.

She provided the following information for the year ended 31st March 2,019.

She Provided the Following Information for the Year Ended 31st March 2,019
$

Prime Cost

25,000

Factory Overheads

4,200

Cost of production

20,800

Question 163 (1 of 5 Based on Passage)

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One Liner▾

Calculate the gross profit for the year ended 31st March 2,019. (Marks 1)

Explanation

Ankita is planning to purchase a new machine costing $ 10,000. Also, she can invest additional capital of $ 4,000.

Question 164 (2 of 5 Based on Passage)

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State any two items which included under ‘Factory Overheads’. (Marks 2)

Explanation

(i) Factory Electricity

(ii) Depreciation on Factory Fixed Assets

  • Factory Overheads are those indirect expenses which are related to the factory in which the product is manufactured. For an item to be categorized under factory overheads, should have two main things-
    • Firstly, it should be indirect expense, i. e. cannot be directly attributed to the product.

    • Secondly, it should be incurred until the production or manufacturing process.

Question 165 (3 of 5 Based on Passage)

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One Liner▾

What is meant by ‘Prime Cost’? (Marks 1)

Explanation

Prime Cost is the sum total of all the direct expenses incurred to manufacture a product.

Question 166 (4 of 5 Based on Passage)

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Short Answer▾

Suggest two ways in which Ankita could get the additional funds required to purchase the machine. (Marks 2)

Explanation

(I) By admitting a new partner

(II) Loan from bank

Explanation:

  • The source of finance will depend on its suitability for Ankita. The admission of a new partner will bring additional capital in the business which can be utilized for purchasing the machine without increasing any liability of the business.
  • However, this can also dilute the ownership and control of Ankita on her business. Contrarily, loan from bank is an external liability but can be suitable if Ankita does not want to lose control over her business.

Ankita estimated that machine if purchased would affect the following as-

(i) Prime Cost would directly proportional to the output which increases by 30%

(ii) Factory overheads would increase by $ 1,000

(iii) Markup would have to be reduced to 20%

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